The dollar index (DXY00) today is up +0.03%. The dollar today climbed to a 2-week high and is slightly higher after US Nov PPI rose more than expected, which pushed T-note yields higher and was hawkish for Fed policy. Also, weakness in the euro is supportive of the dollar after the ECB cut interest rates as expected, knocking the euro down to a 1-1/2 week low. Gains in the dollar were limited after weekly US jobless claims unexpectedly rose to an 8-week high, a sign of labor market weakness that is dovish for Fed policy.
US Nov PPI final demand rose +3.0% y/y, stronger than expectations of +2.6% y/y and the largest increase in 1-3/4 years. Also, Nov PPI ex-food and energy was unchanged from Oct at 3.4% y/y, stronger than expectations of +3.2% y/y.
US weekly initial unemployment claims unexpectedly rose +17,000 to an 8-week high of 242,000, showing a weaker labor market than expectations of a decline to 220,000.
The markets are discounting the chances at 98% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.09% and fell to a 1-1/2 week low. The euro moved lower today after the ECB cut interest rates by -25 bp and also cut its 2024 Eurozone GDP and inflation forecasts. The euro extended its losses based on dovish comments from ECB President Lagarde, who said the ECB sees risks to growth in the Eurozone as "tilted to the downside."
The ECB, as expected, cut the deposit facility rate by -25 bp to 3.00% from 3.25% and dropped previous wording that monetary policy will remain "sufficiently restrictive for as long as necessary."
The ECB cut its 2024 Eurozone GDP forecast to +0.7% from a prior forecast of +0.8% and cut its 2024 Eurozone inflation forecast to +2.4% from a prior forecast of +2.5%.
ECB President Lagarde said that the latest information suggests the Eurozone economy is losing momentum and is expected to strengthen more slowly than seen earlier. She added that the ECB sees risks to growth "tilted to the downside."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) today is down by -0.12%. The yen is slightly higher. Central bank divergence is propping up the yen after the Swiss National Bank cut interest rates today by a more than-expected -50 bp and the ECB cut interest rates by -25 bp. Gains in the yen are limited after a Reuters report said the BOJ sees no need to rush into further rate hikes and is leaning toward keeping interest rates steady when it meets next week. Also, higher T-note yields today are negative for the yen.
February gold (GCG25) today is down -48.60 (-1.76%), and March silver (SIH25) is down -1.157 (-3.51%). Precious metals today erased an early advance and are sharply lower. Gold and silver retreated from 5-week highs today and turned lower after the dollar index climbed to a 2-week high. Also, higher T-note yields today are weighing on precious metals. Losses in precious metals accelerated today after the US Nov PPI rose more than expected, a hawkish factor for Fed policy.
Precious metals today initially moved higher on increased demand as a store of value after the Swiss National Bank cut interest rates by a more-than-expected -50 bp and the ECB cut interest rates by -25 bp. Precious metals prices also have safe-haven support with the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict. In addition, gold found support as a store of value from today’s Reuters report that said the BOJ is leaning toward keeping interest rates steady when it meets next week as opposed to the chance of a rate hike. Silver prices were also pressured after the ECB cut its Eurozone GDP forecast, a negative factor for industrial metals demand.
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