Dollar Strengthens on Higher T-Note Yields

The dollar index (DXY00) today is up by +0.40% at a 4-1/4 month high.  Higher T-note yields today have strengthened the dollar’s interest rate differentials and boosted the dollar.  Comments today from Richmond Fed President Barkin were supportive for the dollar when he said the US economy looks "pretty good." The dollar is also extending last week’s post-election rally on speculation that T-note yields will increase as inflation increases due to President-elect Trump’s pro-tariff policies. 

Richmond Fed President Barkin said the US economy looks "pretty good" and the Fed is in position to respond however the economy evolves.

The markets are discounting the chances at 65% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is down by -0.40% at a 6-3/4 month low.  Dollar strength today is undercutting the euro. Also, an unexpected decline in the German Nov ZEW survey on economic growth expectations was bearish for the euro. In addition, dovish comments from ECB Governing Council member Rehn were bearish for the euro when he said a December interest rate cut by the ECB was likely with disinflation on track.  Finally, political turmoil in Germany is negative for the euro as German Chancellor Scholz's Social Democrats and opposition lawmakers agreed to hold an early election on February 23. 

The German Nov ZEW survey expectations of economic growth unexpectedly fell -3.7 to 7.4 versus expectations of an increase to 13.2.

ECB Governing Council member Rehn said disinflation in the Eurozone is "well on track," and the growth outlook "seems to be weakening," and "that strengthens the case for an ECB rate cut in December."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 24% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) today is up by +0.44%.  Dollar strength today is weighing on the yen.  Also, higher T-note yields today are undercutting the yen. Losses in the yen are limited by signs of economic strength in Japan after the Japanese Oct machine tool orders posted their biggest increase in 4 months.

Japan Oct machine tool orders rose +9.3% y/y, the largest increase in 4 months.

December gold (GCZ24) today is down -3.20 (-0.12%), and December silver (SIZ24) is up +0.192 (+0.63%).  Precious metals today are mixed, with gold dropping to a 1-3/4 month low.  Today’s rally in the dollar index to a 4-1/4 month high is bearish for metals prices. Also, higher global bond yields today are weighing on precious metals.  Silver prices garnered support today after Japanese Oct machine tool orders posted their largest increase in 4 months, a supportive factor for industrial metals demand.

On the positive side for precious metals, dovish comments today from ECB Governing Council member Rehn boosted demand for gold as a store of value when he said a December interest rate cut by the ECB was on track.  Also, demand for gold as a hedge against inflation may remain strong in the near term on the likelihood that Republicans gain control of the House and Senate, which will make it easier for the Trump administration to push through its lower tax, higher tariff, and looser regulation policies, which could revive inflation.  In addition, the ongoing hostilities in the Middle East continue to boost safe-haven demand for precious metals.

More Precious Metal News from Barchart

• Stock Indexes Slightly Higher as They Consolidate Below Record Highs
• Dollar Rallies and Gold Slumps on President-Elect Trump’s Policies
• Stocks Rally on Optimism in President-Elect Trump’s Policies
• Dollar Supported by President-Elect Trump’s Policies

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.