Dollar Posts Modest Gains on Strong US Economic News

The dollar index (DXY00) Friday rose +0.06%.  The dollar Friday recovered from early losses and posted modest gains on stronger-than-expected US economic news that included Oct retail sales and the Nov Empire manufacturing survey.  Also, 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." Long liquidation pressures weighed on the dollar after the dollar had risen in six consecutive sessions to a 1-year high Thursday.

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 58% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) Friday fell by -0.02%.  The euro Friday gave up an early advance and is little changed after the dollar shook off early losses and moved higher.  The euro initially moved higher Friday after the European Commission forecast that 2024 Eurozone GDP of +0.8% will expand to +1.3% in 2025.

The European Commission 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) Friday fell by -1.24%.  The yen recovered from a 3-1/2 month low Friday and moved sharply higher.  Stronger than expected, Japanese economic news on Q3 GDP and Sep industrial production sparked short covering in the yen on Friday.  The yen moved even higher in response to Friday’s comments from Japanese Finance Minister Kato, who said authorities would respond appropriately to excessive moves in currency markets.  The yen added to its gains after T-note yields gave up an early advance and turned lower.

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 of +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) Friday closed down -2.80 (-0.11%), and December silver (SIZ24) closed down -0.137 (-0.45%).  Precious metals Friday gave up early gains and posted modest losses. A rebound in the dollar Friday from early losses sparked long liquidation in precious metals.  Also, hawkish Fed comments are bearish for precious metals after Fed Chair Powell said on Thursday that the Fed was in no hurry to cut interest rates.  Also, Boston Fed President Collins said Friday that a December interest rate cut by the Fed isn't a "done deal."  In addition, a decline in inflation expectations reduced demand for gold as an inflation hedge after the US 10-year breakeven inflation rate Friday fell to a 1-week low.

Precious metals Friday initially moved higher as a slump in stocks 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, a bullish factor for industrial metals demand.  Demand for gold as a hedge against inflation may remain strong in the near term as 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 that could revive inflation.  In addition, the ongoing hostilities in the Middle East continue to boost safe-haven demand for precious metals.