Dollar Recovers and Pushes Higher on President-Elect Trump’s Policies

The dollar index (DXY00) today is up by +0.43% at a 6-3/4 month high.  The dollar index today recovered from early losses and turned higher as it extends the post-election rally on speculation that T-note yields will increase as inflation increases due to President-elect Trump’s pro-tariff policies.  The dollar today initially moved lower as T-note yields fell on the as-expected US Oct CPI report.  The benign inflation report boosted the chances to 82% for the Fed to cut interest rates by 25 bp next month from 62% before the report, a negative factor for the dollar. 

US Oct CPI rose +0.3% m/m and +2.6% y/y, right on expectations.  Oct CPI ex-food and energy remained unchanged from Sep at +3.3% y/y, right on expectations.

Minneapolis Fed President Kashkari said inflation is headed in the right direction, and he doesn't think inflation is stuck above the Fed's 2% target.

Dallas Fed President Logan said, "I anticipate the FOMC will most likely need more rate cuts to finish the journey," but policymakers should "proceed cautiously" given uncertainties about how restrictive monetary policy currently is.

The markets are discounting the chances at 82% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is down by -0.52% at a 1-year low. Strength in the dollar today is weighing on the euro.  Also, comments from ECB Governing Council member Nagel undercut the euro when he said President-elect Trump's tariff plans could cost Germany 1% of GDP and could cause economic contraction.  The euro today initially moved higher as the dollar weakened temporarily on a benign US Oct CPI report.  The euro also garnered support on hawkish comments from ECB Governing Council member Nagel, who said that core inflation is still quite high and there are still noticeable price pressures, especially in services.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 23% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) today is up by +0.30%.  The yen today gave up overnight gains and fell to a 3-1/2 month low against the dollar on speculation President-elect Trump’s policies will boost inflation and keep the Fed from aggressively cutting interest rates.  The yen today initially moved higher on the stronger-than-expected Japan Oct PPI report, a hawkish factor for BOJ policy.  Also, today’s decline in T-note yields is supportive of the yen.

Japan's Oct PPI rose +0.2% m/m and +3.4% y/y, stronger than expectations of unch m/m and +2.9% y/y, with the +3.4% y/y gain the largest year-on-year increase in 14 months.

December gold (GCZ24) today is down -2.20 (-0.08%), and December silver (SIZ24) is down -0.014 (-0.05%).  Precious metals today gave up an early advance and turned lower after the dollar index rebounded from early losses and rallied to a 6-3/4 month high. Precious metals today also fell on hawkish comments from ECB Governing Council member Nagel, who said core inflation is still quite high and there are still noticeable price pressures, especially in services.  In addition, today’s stronger-than-expected Japan Oct PPI report is hawkish for BOJ policy and may prompt the BOJ to raise interest rates at next month’s policy meeting. Silver has some negative carryover from today’s slide in copper prices to a 2-month low.

Precious metals today initially moved higher and found support on a benign US Oct CPI report, a dovish factor for Fed policy.  Also, today’s decline in T-note yields is supportive of precious metals.  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

• Stocks Climb and T-Note Yields Fall as US CPI Report Meets Expectations
• Dollar Supported by Rising T-Note Yields
• Stocks Slightly Lower as Indexes Consolidate Recent Rally
• Dollar Strengthens on Higher T-Note Yields

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.