The dollar index (DXY00) on Monday rose by +0.07%.  The dollar on Monday recovered from early losses and posted modest gains.  A repricing of chances for Fed rate cuts is boosting the dollar as swap markets now discount the chances of a Fed rate cut at the March FOMC meeting at 42%, below the more than 60% chance the market priced in earlier this month.  On Monday, the dollar initially moved lower on a slide in T-note yields and a rally in U.S. stock indices to new record highs, which reduced the liquidity demand for the dollar.

Monday’s U.S. economic news was better-than-expected and supportive for the dollar after the Dec leading economic indicators fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m. 

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on Jan 30-31 and a 42% chance for that -25 bp rate cut for the following meeting on March 19-20.

EUR/USD (^EURUSD) on Monday fell by -0.15%.  A recovery in the dollar on Monday weighed on the euro after the dollar index rebounded from early losses and moved slightly higher.  Also, negative Eurozone economic news is bearish for the euro after France’s Dec retail sales volume fell -2.4% y/y, the nineteenth consecutive monthly decline.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and 12% for the following meeting on March 7.

USD/JPY (^USDJPY) on Monday fell by -0.01%.  The yen on Monday rose slightly on lower T-note yields.  Also, short covering and position squaring ahead of Tuesday’s BOJ meeting boosted the yen.  Gains in the yen were limited as Monday’s rally in the Nikkei Stock Index to a nearly 34-year high curbed safe-haven demand for the yen.

February gold (GCG4) Monday closed -7.10 (-0.35%), and Mar silver (SIH24) closed -0.415 (-1.83%).  Precious metals on Monday closed moderately lower, with silver tumbling to a 3-1/2 month low.  A stronger dollar on Monday was bearish for metals.  Also, Monday’s rally in U.S. stock indexes to record highs reduced safe-haven demand for precious metals.  Gold prices were undercut by the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low last Friday.  Monday’s plunge in China’s Shanghai Composite to a 3-3/4 year low has sparked concerns about China’s economy and its demand for industrial metals, which is bearish for silver prices.  The decline in global bond yields on Monday limited losses in precious metals prices. 



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