The dollar index (DXY00) Friday rose by +0.37%. The dollar on Friday recovered from early losses and posted moderate gains. Friday’s better-than-expected US economic news on Dec housing starts and Dec manufacturing production were bullish for the dollar. Also, Friday's action by the IMF to raise its 2025 US GDP forecast due to stronger demand supports the dollar. In addition, hawkish comments from Cleveland Fed President Hammack were bullish for the dollar when she said the Fed could be "very patient" on further interest rate cuts.
The dollar on Friday initially moved lower after the 10-year T-note yield fell to a 2-week low of 4.566%, weakening the dollar's interest rate differentials. Also, Friday's stock rally reduced liquidity demand for the dollar.
US Dec housing starts rose +15.8% m/m to a 10-month high of 1.499 million, stronger than expectations of 1.327 million. Also, Dec building permits, a proxy for future construction, fell -0.7% to 1.483 million, stronger than expectations of 1.460 million.
US Dec manufacturing production rose +0.6% m/m, stronger than expectations of +0.2% m/m and the largest increase in 4 months.
Cleveland Fed President Hammack said we still have an inflation problem, and the Fed can be "very patient" on further interest rate cuts.
On Friday, the International Monetary Fund (IMF) raised its 2025 global GDP forecast to 3.3%, up from a 3.2% forecast in October, citing stronger US demand. The IMF raised its US 2025 GDP forecast to 2.7% from an October estimate of 2.2% and cut its Eurozone 2025 GDP estimate to 1.0% from 1.2% in October.
The markets are discounting the chances at 1% for a -25 bp rate cut at the January 28-29 FOMC meeting.
EUR/USD (^EURUSD) Friday fell by -0.23%. The euro on Friday gave up an early advance and turned dollar on strength in the dollar. The euro also came under pressure after the IMF cut its Eurozone 2025 GDP estimate to 1.0% from an October forecast of 1.2%.
The euro Friday initially moved higher on hawkish comments from ECB Governing Council member and Bundesbank President Nagel, who said, "We shouldn't be too hasty in our efforts to normalize monetary policy. Inflation is currently still elevated, and service prices, in particular, continue to rise dynamically.”
Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at its next meeting on January 30.
USD/JPY (^USDJPY) Friday rose up by +0.64%. The yen on Friday fell from a 4-week high against the dollar and finished moderately lower. The yen came under pressure Friday on falling Japanese government bond yields that weakened the yen's interest rate differentials after the 10-year JGB bond yield fell to a 1-week low of 1.178%.
The yen on Friday initially moved higher when the Nikkei reported that a majority of the BOJ's policy board would likely favor a rate hike at the Jan 23-24 policy meeting. Also, Friday’s fall in the Nikkei Stock Index to a 1-1/2 month low boosted safe-haven demand for the yen.
February gold (GCG25) Friday closed down -2.20 (-0.08%), and March silver (SIH25) closed down -0.584 (-1.84%). Precious metals settled moderately lower on Friday due to a strong dollar. Also, hawkish central bank comments Friday weighed on precious metals when ECB Governing Council member and Bundesbank President Nagel said, "We shouldn't be too hasty in our efforts to normalize monetary policy." In addition, Friday's action by Israel's security cabinet to approve a ceasefire deal with Hamas eases tensions in the Middle East and reduces safe-haven demand for precious metals.
Losses in precious metals were limited on Friday due to lower global bond yields. Precious metals still have continued safe-haven support from geopolitical risks after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict. Better than expected US and Chinese economic news on Friday was supportive of industrial metals demand and silver prices after US Dec housing starts and Dec manufacturing production rose more than expected, and after China Q4 GDP and Dec industrial production rose more than expected.
China's Q4 GDP rose +5.4% y/y, stronger than expectations of +5.0% y/y and the fastest pace of expansion in six quarters. Also, China Dec industrial production rose +6.2% y/y, stronger than expectations of +5.4% y/y and the biggest increase in 8 months.
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 Barchart- 1 ETF to Buy Hand Over Fist as the 10-Year Yield Hovers Near 5%
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