The dollar index (DXY00) today edged to a new 2-year high but then fell back and is currently down -0.32%. The dollar was undercut by the US PCE deflator report, which was dovish for Fed policy and caused weaker US interest rate differentials with the 10-year T-note yield down -5 bp. In addition, today’s US personal spending and consumer sentiment reports were slightly weaker than expected.
The dollar was also undercut by US political uncertainty as the US government faces a shutdown at midnight tonight if Congress cannot pass a stop-gap spending bill.
Today’s PCE price index report was a bit weaker than expected, which could give the FOMC a bit more leeway to cut interest rates. The Nov PCE price index rose +0.1% m/m and +2.4% y/y, a bit weaker than expectations of +0.2% m/m and +2.5% y/y. The Nov core PCE price index rose +0.1% m/m and +2.8% y/y, a bit weaker than expectations of +0.2% m/m and +2.9% y/y.
Today's headline Nov PCE price index report of +2.4% y/y was up from Oct's +2.3% y/y, while the Nov core price index report of +2.8% y/y was unchanged from October. Both measures remained above the Fed's +2.0% inflation target and their respective 3-3/4 year lows of +2.1% y/y (nominal) and +2.6% y/y (core) posted earlier this year.
Today's Nov personal income report of +0.3% m/m was slightly weaker than the consensus of +0.4%, but Oct was revised slightly higher to +0.7% from +0.6%. Today's Nov personal spending report of +0.4% m/m was slightly weaker than expectations of +0.5%, and Oct was revised slightly lower to +0.3% from +0.4%.
The University of Michigan’s final-Dec US consumer sentiment index was left unrevised at an 8-month high of 74.0, which was a bit weaker than expectations for a +0.2 point upward revision to +74.2. The consumer index has now increased for five straight months.
The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) today is up +0.30%. The euro posted modest gains after the dollar lost ground on the US PCE inflation report.
The euro also saw some support on the German Nov PPI report of +0.5% m/m and +0.1% y/y, stronger than expectations of +0.3% m/m and -0.3% y/y. Also, the French Nov PPI strengthened to +3.2% m/m and -5.2% y/y from Oct’s +0.9% m/m and -5.7% y/y.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 12% chance for a -50 bp rate cut at that meeting.
USD/JPY (^USDJPY) is down -0.45%. The yen recovered some ground after falling sharply on Thursday when the BOJ kept its overnight call rate unchanged at 0.25%, and BOJ Governor Ueda signaled the BOJ is in no hurry to raise interest rates.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here. More news from BarchartThe views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
