Dollar Slips Ahead of Wednesday’s FOMC Meeting Outcome

The dollar index (DXY00) on Tuesday fell by -0.19% on some long liquidation pressure ahead of the results of the 2-day FOMC meeting on Wednesday.  Also, strength in the euro weighed on the dollar on stronger-than-expected Eurozone economic news.  However, losses in the dollar were limited after U.S Dec JOLTS job openings unexpectedly rose, a hawkish factor for Fed policy.

Tuesday’s U.S. economic news showed strength in the economy and supported the dollar.  The U.S. Nov S&P CoreLogic composite-20 home price index rose +5.4% y/y, the largest increase in a year.  Also, the Conference Board U.S. Jan consumer confidence index rose +6.8 points to a 2-year high of 114.8, right on expectations.  In addition, Dec JOLTS job openings unexpectedly rose +101,000 to 9.026 million, showing a stronger labor market than expectations of a decline to 8.750 million.

The markets are discounting the chances for a -25 bp rate cut at 2% at this week’s FOMC meeting and 43% for that -25 bp rate cut at the following meeting on March 19-20.

EUR/USD (^EURUSD) on Tuesday rose by +0.09%.  The euro rose slightly on the heels of stronger-than-expected Eurozone economic news on Q4 GDP and Spain's Dec CPI, which may prompt the ECB to delay cutting interest rates.  However, the euro gave up most of its advance after the dollar recovered on stronger-than-expected U.S. economic reports. 

Eurozone Q4 GDP was revised upward to unchanged q/q and +0.1% y/y from the previously reported -0.1% q/q and +0.1% y/y.

The Eurozone Dec economic confidence indicator fell -0.1 to 96.2, slightly stronger than expectations of 96.1.

Spain's Jan CPI (EU harmonized) unexpectedly strengthened to +3.5% y/y from +3.3% y/y in Dec, stronger than expectations of an easing to +3.0% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 24% for its next meeting on March 7 and 92% for that same rate cut at the following meeting on April 11.

USD/JPY (^USDJPY) on Tuesday rose by +0.11%.  The yen on Tuesday gave up overnight gains and turned lower as T-note yields rose on stronger-than-expected U.S. economic reports. The yen initially moved higher on signs of strength in Japan’s economy after Japan’s Dec jobless rate unexpectedly fell to an 11-month low. 

The Japan Dec jobless rate unexpectedly fell -0.1 to an 11-month low of 2.4%, showing a stronger labor market than expectations of no change at 2.5%.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 27% for its next meeting on March 19 and at 75% for the following meeting on April 26.

February gold (GCG4) Tuesday closed +6.40 (+0.31%), and Mar silver (SIH24) closed -0.026 (-0.11%).  Precious metals on Tuesday settled mixed, with gold posting a 2-week high. A weaker dollar Tuesday was supportive of precious metals.  Geopolitical risks have also boosted safe-haven demand for precious metals on concern about the escalation of conflict in the Middle East after three U.S. servicemen were killed in a drone attack over the weekend on a base near the Syrian border.  Silver has support after the IMF raised its 2024 global GDP forecast, a supportive factor for industrial metals demand.

On the negative side for precious metals was Tuesday ‘s stronger-than-expected U.S. report on Dec JOLTS job openings, a hawkish factor for Fed policy.  Also, gold is under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Monday. 

• Stocks Struggle as Bond Yields Rise on Strong JOLTS Job Openings Report
• Dollar Gives up Early Gains as Bond Yields Fall on Lower Treasury Borrowing Estimates
• Stocks Move Higher in Afternoon Trade
• Dollar Slips as U.S. Price Pressures Ease

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.