The dollar index (DXY00) on Thursday fell by -0.58%. Thursday’s main bearish factor for the dollar was a sharp rally in the yen to a 4-month high on speculation that the BOJ might soon exit its ultra-easy monetary policy. Thursday’s rally in stocks also curbed the liquidity demand for the dollar.
Thursday’s U.S. economic news was mixed for Fed policy and the dollar. On the bearish side, Oct wholesale trade sales unexpectedly fell -1.3 % m/m, weaker than expectations of +1.0% m/m and the biggest decline in 7 months. Also, Oct consumer credit rose +$5.134 billion, weaker than expectations of +$8.5 billion. Conversely, weekly continuing unemployment claims fell -64,000 to 1.861 million, showing a stronger labor market than expectations of 1.910 million.
The markets are discounting a 1% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 71% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are more than fully discounting (146%) that -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
EUR/USD (^EURUSD) on Thursday rose by +0.34%. The euro on Thursday recovered from a 3-month low and rose moderately as dollar weakness sparked short covering in EUR/USD. The euro Thursday initially fell to a 3-week low after an unexpected decline in German Oct industrial production knocked the 10-year German bund yield down to an 8-month low of 2.166%.
Eurozone Q3 employment was revised lower to +0.2% q/q and +1.3% y/y from the previously reported +0.3% q/q and +1.4% y/y.
German Oct industrial production unexpectedly fell -0.4% m/m, weaker than expectations of +0.2% m/m.
Swaps tied to ECB meeting dates have now priced in a 74% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting.
USD/JPY (^USDJPY) on Thursday fell by -2.60%. On Thursday, the yen rallied sharply and posted a 4-month high against the dollar. Massive short covering emerged in the yen Thursday, and the 10-year JGB bond yield soared to a 1-week high of 0.769% after comments from BOJ Governor Ueda to the Japanese parliament bolstered speculation the BOJ would soon exit its ultra-easy monetary policy. Also, a sharp -1.76% decline in the Nikkei Stock Index Thursday boosted safe-haven demand for the yen.
On Thursday, BOJ Governor Ueda told the Japanese parliament that handling monetary policy "will become even more challenging from the year-end and through next year," stoking speculation that the BOJ would soon end its negative interest rate monetary policy.
The Japan Oct leading index CI fell -0.2 to 108.7, a smaller decline than expectations of 108.2.
February gold (GCG4) Thursday closed down -1.50 (-0.07%), and Mar silver (SIH24) closed down -0.169 (-0.70%). Gold and silver prices Thursday closed lower, with silver falling to a 2-week low. Higher global bond yields on Thursday were bearish for precious metals. Also, comments from BOJ Governor Ueda bolstered speculation that the BOJ will soon exit its negative interest rate policy and was bearish for gold. Silver prices were under pressure on industrial metals demand concerns after German Oct industrial production unexpectedly declined. Finally, Thursday’s rally in stocks dampened safe-haven demand for precious metals. A weak dollar on Thursday limited losses in metals.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
