The dollar index (DXY00) on Wednesday rose by +0.27% and posted a 2-1/2 week high. Weakness in stocks on Wednesday boosted the liquidity demand for the dollar. The dollar also found support from the minutes of the Dec 12-13 FOMC meeting that said policymakers agreed it would be appropriate to maintain restrictive policy for some time.
U.S. economic news Wednesday was mixed for the dollar. On the positive side, the Dec ISM manufacturing index rose +0.7 to 47.4, stronger than expectations of 47.1. Conversely, the Nov JOLTS job openings unexpectedly fell -62,000 to a 2-1/2 year low of 8.790 million, showing a weaker labor market than expectations of an increase to 8.821 million.
The minutes of the Dec 12-13 FOMC meeting gave no sign of an imminent Fed rate cut and were supportive for the dollar. The minutes showed policymakers agreed that "it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably." Also, "participants viewed the policy rate as likely at or near its peak for his tightening cycle."
The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on Jan 30-31 and at a 79% chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Wednesday fell by -0.22% and posted a 2-week low. A stronger dollar Wednesday undercut the euro. Also, economic concerns weighed on EUR/USD after Wednesday’s news that the German Dec unemployment rate ticked up to a 2-1/2 year high of 5.9%.
The German Dec unemployment change rose by +5,000, showing a stronger labor market than expectations of +20,000. The Dec unemployment rate rose +0.1 to a 2-1/2 year high of 5.9%, right on expectations.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 9% for its next meeting on January 25 and at 63% for the following meeting on March 7.
USD/JPY (^USDJPY) on Wednesday rose by +0.85%. The yen on Wednesday extended Tuesday’s slide to a 2-week low against the dollar. The yen recovered from its worst levels after T-note yields gave up early gains and turned lower. Wednesday's trading activity in the yen was dampened with markets closed in Japan through Wednesday for the New Year’s holiday.
February gold (GCG4) Wednesday closed -30.60 (-1.48%), and Mar silver (SIH24) closed -0.796 (-3.32%). Gold and silver on Wednesday retreated, with gold dropping to a 2-week low and silver sliding to a 3-week low. Wednesday’s rally in the dollar index to a 2-1/2 week high undercut metals prices. Industrial metals demand concerns weighed on silver prices after Wednesday’s news that U.S. manufacturing activity in December contracted for the fourteenth consecutive month, and the German unemployment rate in December rose to a 2-1/2 year high.
Metals prices recovered from their worst levels after T-note yields gave up an early advance and moved lower. Also, Wednesday’s stock weakness boosted some safe-haven demand for precious metals.
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