Dollar Gains on Weak Stocks and Higher T-Note Yields

The dollar index (DXY00) today is up by +0.14%.  The dollar today recovered from early losses and is moderately higher, just below Thursday’s 1-year high on Thursday.  The dollar has risen in six consecutive sessions and extended 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 also garnered support as T-note yields rose on today’s stronger-than-expected US economic news on Oct retail sales and the Nov Empire manufacturing survey.  In addition, hawkish comments from Boston Fed President Collins boosted the dollar when she said a December interest rate cut by the Fed isn't a "done deal."

US Oct retail sales rose +0.4% m/m, stronger than expectations of +0.3% m/m, and Sep was revised higher to +0.8% m/m from the previously reported +0.4% m/m.

The US Nov Empire manufacturing survey of general business conditions rose +43.1 to a 2-3/4 year high of 31.2, stronger than expectations of 0.0.

The US Oct import price index ex-petroleum rose +0.2% m/m, stronger than expectations of +0.1% m/m.

US Oct manufacturing production fell -0.5% m/m, which was right on expectations.

The markets are discounting the chances at 55% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is unchanged.  The euro today gave up an early advance and is little changed after the dollar shook off early losses and moved higher.  The euro initially moved higher today after the European Commission forecast that 2024 Eurozone GDP of +0.8% will expand to +1.3% in 2025.

The European Commission today forecasts 2024 Eurozone GDP of +0.8% and inflation of +2.4% and projects Eurozone inflation slowing to the ECB's 2% target in Q4 of 2025.

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 down by -0.61%.  The yen today recovered from a 3-1/2 month low against the dollar and is moderately higher.  Stronger than expected Japanese economic news on Q3 GDP and Sep industrial production sparked short covering in the yen.  The yen moved even higher in response to today’s comments from Japanese Finance Minister Kato, who said authorities would respond appropriately to excessive moves in currency markets.  Further gains in the yen today may be limited due to rising T-note yields.

Japan's Q3 GDP grew +0.9% (q/q annualized), stronger than expectations of +0.7%.  The Q3 deflator rose +2.5% y/y, weaker than expectations +2.7% y/y.

Japan Sep industrial production was revised upward by +0.2 to1.6% m/m from the previously reported +1.4% m/m.

Japanese Finance Minister Kato said authorities would respond appropriately, "with a very high sense of urgency," to any excessive moves in the forex market.

December gold (GCZ24) today is up +5.70 (+0.22%), and December silver (SIZ24) is up +0.196 (+0.64%).  Precious metals today are moderately higher.  Today’s slide in stocks has boosted some safe-haven demand for precious metals.  Silver prices also garnered support after US Oct retail sales and Japan's Q3 GDP rose more than expected, bullish factors for industrial metals demand.  Demand for gold as a hedge against inflation may remain strong in the near term after Republicans gained 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 that could revive inflation.  In addition, the ongoing hostilities in the Middle East continue to boost safe-haven demand for precious metals.

Higher T-note yields today and a stronger dollar are limiting the upside in precious metals. Also, hawkish Fed comments are bearish for precious metals after Fed Chair Powell on Thursday said the Fed was in no hurry to cut interest rates, and Boston Fed President Collins said today that a December interest rate cut by the Fed isn't a "done deal."