Dollar Grinds Higher on Weak Stocks and Stronger T-Note Yields

The dollar index (DXY00) today is up by +0.53%.  Higher T-note yields today and weakness in stocks support moderate gains in the dollar.  Also, weakness in EUR/USD is benefitting the dollar on dovish comments from ECB Vice President Guindos, who said he expects the ECB to continue lowering interest rates. The dollar has risen sharply over the past two weeks to a 1-year high last week due to President-elect Trump’s plans to raise tariffs and concerns his fiscal agenda will boost inflation and deter the Fed from cutting interest rates. 

The markets are discounting the chances at 59% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is down by -0.63%.  The euro retreated today on dovish comments from ECB Vice President Guindos, who said he expects the ECB to keep lowering interest rates. Signs of wage pressures in the Eurozone may limit further weakness in the euro today after the ECB reported that Q3 Eurozone negotiated pay increased by the most since the euro’s inception, a hawkish factor for ECB policy. 

The ECB reported Eurozone Q3 negotiated pay rose +5.4% y/y, the largest increase since the euro was introduced in 1999.

ECB Vice President Guindos said, "My impression is that the ECB will continue reducing the restriction of its monetary-policy stance over the next months and quarters."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 16% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) today is up by +0.31%.  The yen is under pressure today from higher T-note yields. Also, a slight easing of Ukraine-Russian tensions has curbed safe-haven demand for the yen after Reuters reported that Russian President Putin is willing to talk with US President-elect Trump about a cease-fire deal in Ukraine.  Today’s upward revision to Japan Oct machine tool orders and stronger-than-expected trade news for Oct supported the yen.

Japan Oct machine tool orders were revised upward by +0.1 to 9.4% y/y from the previously reported +9.3% y/y.

Japanese trade news was better than expected as Japan Oct exports rose +3.1% y/y, stronger than expectations of +1.0% y/y.  Also, Oct imports unexpectedly rose +0.4% y/y versus expectations of a -1.9% y/y decline.

December gold (GCZ24) today is up +17.60 (+0.67%), and December silver (SIZ24) is down -0.072 (-0.23%).  Precious metals today are mixed, with gold climbing to a 1-week high. Demand for gold as a store of value increased today on dovish comments from ECB Vice President Guindos who said he expects the ECB to keep cutting interest rates.  Also, demand for gold as a hedge against inflation increased today after UK Oct consumer prices rose more than expected.  Escalating tensions in the Ukraine-Russia conflict and geopolitical risks in the Middle East continue supporting safe-haven demand for precious metals. 

A bearish factor for precious metals today is a stronger dollar.  Also, higher global bond yields are negative for precious metals.  In addition, Ukraine-Russia tensions eased slightly today, which curbed some safe-haven demand for precious metals after Reuters reported that Russian President Putin is willing to talk with US President-elect Trump about a cease-fire deal in Ukraine.  Finally, the ECB today reported a record increase in Eurozone Q3 negotiated pay, a sign of wage pressures that are a hawkish factor for ECB policy.