The dollar index (DXY00) Friday fell by -0.31% and posted a 2-1/2 week low. Friday’s decline in T-note yields weighed on the dollar. Also, Friday’s rally in the S&P 500 to a record high reduced liquidity demand for the dollar.
The markets are discounting the chances at 66% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Friday rose by +0.30% and posted a new 1-week high. Friday’s dollar weakness supported modest gains in the euro. However, weaker than expected Eurozone Nov core CPI and a sharper than expected decline in German Oct retail sales are dovish for ECB policy and bearish for the euro. Also, dovish comments were made on Friday by ECB Vice President Guindos and ECB Governing Council member Stournaras undercutting the euro.
Eurozone Nov CPI rose +2.3% y/y, right on expectations. Nov core CPI rose +2.7% y/y, weaker than expectations of +2.8% y/y.
The ECB’s Oct 1-year inflation expectations unexpectedly increased to +2.5% from +2.4% in Sep, stronger than expectations of a decline to +2.3% y/y. Oct 3-year inflation expectations were unchanged from Sep at +2.1%, right on expectations.
German Oct retail sales fell -1.5% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 2 years.
German Nov unemployment rose by +7,000, showing a stronger labor market than expectations of +20,000. The Nov unemployment rate was unchanged at 6.1%, right on expectations.
ECB Vice President Guindos said, “Inflation in Europe is going quite well, the data are positive, although news on the Eurozone economy is less good.”
ECB Governing Council member Stournaras said it’s very likely that “the ECB will have a more aggressive interest-rate reduction policy” if there’s evidence US tariffs will lead Europe into recession.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 15% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Friday fell by -1.32%. The yen climbed to a new 5-week high against the dollar after Friday’s news showed stronger-than-expected Tokyo Nov consumer prices, which bolsters the prospects of additional BOJ interest rate hikes. Friday’s decline in T-note yields is also supportive of the yen. Bearish factors for the yen included the weaker-than-expected reports on Japan Oct industrial production and Oct retail sales, dovish factors for BOJ policy.
The Japan Nov consumer confidence index rose +0.2 to 36.4, weaker than expectations of 36.5.
Japan Oct industrial production rose +3.0% m/m, weaker than expectations of +4.0% m/m.
Japan Oct retail sales rose +0.1% m/m, weaker than expectations of +0.4% m/m.
The Japan Nov Tokyo CPI rose +2.6% y/y, stronger than expectations of +2.2% y/y. Nov Tokyo CPI ex-fresh food and energy rose +1.9% y/y, right on expectations.
December gold (GCZ24) Friday closed up +17.10 (+0.65%), and December silver (SIZ24) closed up +0.574 (+1.91%). Precious metals Friday settled moderately higher. Friday’s decline in the dollar index to a 2-1/2 week low supported metals prices. Also, Friday’s decline in global bond yields is bullish for precious metals. In addition, dovish comments from ECB Vice President Guindos boosted demand for gold as a store of value after said, “Inflation in Europe is going quite well.” Finally, ramped-up hostilities in the Ukraine-Russia conflict support safe-haven demand for precious metals after Russian President Putin warned that Russia could strike “decision-making centers” in Kyiv with ballistic missiles.
Gains in precious metals were limited Friday as a rally in stocks curbed safe-haven demand for precious metals. A bearish factor for silver prices was Friday’s news that showed Japan’s Oct industrial production and German Oct retail sales rose less than expected, which was a negative factor for industrial metals demand.
