Dollar Slips on Lower T-Note Yields and Dovish Williams

The dollar index (DXY00) today is down by -0.19%.  The dollar today is posting modest losses and is weighed down by lower T-note yields.  Also, dovish comments from New York Fed President Williams undercut the dollar when he said he expects the Fed to keep cutting interest rates.  Losses in the dollar were limited after US weekly initial unemployment claims unexpectedly fell to a 6-1/2 month low, a hawkish factor for Fed policy.

US weekly initial unemployment claims unexpectedly fell -6,000 to a 6-1/2 month low of 213,000, showing a stronger labor market than expectations of an increase to 220,000.

The US Nov Philadelphia Fed business outlook survey fell -15.8 to -5.5, weaker than expectations of 8.0.

US Oct leading indicators fell -0,4% m/m, weaker than expectations of -0.3% m/m.

US Oct existing home sales rose +3.4% m/m to 3.96 million, stronger than expectations of 3.95 million.

New York Fed President Williams said US economic growth has been "very good" and "the disinflationary process will continue."  He added that the cooling labor market and lower inflation show that monetary policy is restrictive today, and he expects "it will be appropriate over time to bring the fed-funds rate down closer to more normal or neutral levels."

The markets are discounting the chances at 56% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is down by -0.09%.  The euro is under pressure today based on dovish comments from ECB Governing Council member Stournaras, who said the ECB should cut interest rates at every meeting until the deposit rate reaches 2%.  Escalation of the Ukraine-Russia conflict is also weighing on the euro after Ukraine said Russia launched an intercontinental ballistic missile at the city of Dnipro.  In addition, an unexpected decline in Eurozone Oct consumer confidence to a 5-month low is bearish for the euro.  The euro recovered from its worst level on hawkish comments from ECB Governing Council member Holzmann who said ECB monetary policy must remain restrictive on price risks.

Eurozone Oct new car registrations rose +1.1% y/y to 866,000 units, the biggest increase in 4 months.

The Eurozone Nov consumer confidence index unexpectedly fell -1.2 to a 5-month low of -13.7, weaker than expectations of an increase to -12.4.

ECB Governing Council member Stournaras said, "As inflation develops now and as the real economy develops now, I think the ECB should cut rates at each meeting until we get to what we call the neutral rate, which is about 2% according to estimates." 

ECB Governing Council member Holzmann said ECB monetary policy must remain restrictive because "it's not yet guaranteed that inflation will sustainably reach 2%."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 18% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) today is down by -0.93%.  Short covering pushed the yen higher against the dollar today after BOJ Governor Ueda said he is “closely watching” forex impacts on the economy and inflation.  Also, higher bond yields are strengthening the yen’s interest rate differentials as the 10-year JGB 10-year bond yield rose to a 4-1/2 month high today of 1.100%. In addition, the escalation of Ukraine-Russian tensions boosted safe-haven demand for the yen after Russia launched an intercontinental ballistic missile against Ukraine.

BOJ Governor Ueda said that he is closely watching forex impacts on the economy and inflation, and that it's not possible to predict the outcome of the BOJ's December meeting.

December gold (GCZ24) today is up +15.60 (+0.59%), and December silver (SIZ24) is up +0.010 (+0.03%).  Precious metals today are moving higher, with gold posting a 1-1/2 week high. Today’s weaker dollar is supportive of metals.  Escalating tensions in the Ukraine-Russia conflict boosted safe-haven demand for precious metals after Ukraine said Russia launched an intercontinental ballistic missile at the city of Dnipro.  Also, lower T-note yields today are supportive of precious metals.  Demand for gold as a store of value also increased today based on dovish ECB comments after ECB Governing Council member Stournaras said the ECB should cut interest rates at each policy meeting until the deposit rate falls to 2%. 

Today’s news that showed US weekly initial unemployment claims unexpectedly fell to a 6-1/2 month low indicates strength in the labor market that may prompt the Fed to delay additional interest rate cuts, a bearish factor for precious metals.  Gains in silver prices are limited by concerns that the incoming Trump administration’s pro-tariff policies will curb global economic growth and reduce demand for industrial metals.