U.S. Dollar and Economic Updates
Overview of Dollar Performance
On Monday, the dollar index saw an increase of 0.44%, marking a recovery after a decline of 0.73% from the previous Friday. This rise can be attributed to improved interest rate differentials in the U.S., highlighted by a 6 basis points increase in the yield on the 10-year Treasury note. Additionally, the passage of a stop-gap funding bill in Congress helped avert a potential government shutdown, maintaining stability in the U.S. economy.
Economic Indicators and Reports
Despite the dollar’s rally, recent economic reports have indicated some weakness. Following projections, the November durable goods report revealed a 1.1% month-over-month decline, which was worse than expectations of a 0.3% drop. However, it’s worth noting that the October figures were revised upward, reflecting a growth of 0.8% from the previously stated 0.3%.
When looking at the durable goods orders excluding transportation, there was a slight decrease of 0.1%, falling short of the anticipated 0.3% increase. On a more positive note, capital goods orders excluding defense and aircraft—often viewed as an indicator of capital spending—reported a rise of 0.7%, surpassing expectations of a mere 0.1% increase.
Furthermore, the November report on new home sales showed an increase of 5.9% to a total of 664,000, although this figure was below projections of 669,000. The consumer confidence index from the Conference Board for December also registered a decline, falling by 8.1 points to 104.7, in stark contrast to the expected rise to 113.2.
Market expectations have begun to price in a 9% probability of a 25 basis point rate cut during the upcoming Federal Open Market Committee meeting scheduled for January 28-29.
Currency Fluctuations and Global Impact
The EUR/USD currency pair experienced a dip of 0.23%, largely due to the strengthening of the dollar. Nevertheless, the euro did find some support following comments from ECB President Christine Lagarde, who provided a somewhat hawkish outlook indicating vigilance towards persistent inflationary pressures within the services sector. She reassured that the European Central Bank is approaching its inflation target.
In November, the German import price index saw a month-over-month rise of 0.9% and a year-over-year increase of 0.6%, surpassing forecasts of 0.6% and 0.3% for m/m and y/y, respectively. Market forecasts currently suggest a 100% expectation for a 25 basis point rate cut by the ECB at its meeting on January 30, along with a 9% chance of a 50 basis point cut during that session.
Meanwhile, USD/JPY rose by 0.47% but remained below the five-month high reached on the preceding Friday. The Japanese yen suffered a significant drop last week after the Bank of Japan decided to maintain its overnight call rate at 0.25%. Statements from BOJ Governor Kazuo Ueda indicated that a prolonged wait might be necessary before implementing any rate hikes, suggesting that clarity regarding wages will not emerge until March or April.
Precious Metals Market Insights
Febraury gold futures closed down by $16.90, a decline of 0.64%, while March silver futures saw a modest increase of $0.231, equating to a rise of 0.77%. The drop in gold prices can be linked to the stronger dollar and increasing Treasury note yields. Additionally, geopolitical risks continue to bolster demand for safe-haven assets like precious metals, especially following recent tensions resulting from the collapse of the Syrian government and escalating conflicts in Ukraine.
