The dollar index (DXY00) fell by -0.52% on Friday. The dollar retreated on Friday after economic news showed the US New S&P manufacturing PMI fell more than expected. Also, strength in the euro on Friday weighed on the dollar after the German New IFO business climate increased more than expected to a 4-month high.
Friday’s US economic news was mixed for the dollar. On the downside, the New S&P manufacturing PMI fell -0.6 to 49.4, weaker than expectations of 49.9. Conversely, the New S&P services PMI unexpectedly rose + 0.2 to a 4-month high of 50.8, stronger than expectations of a decline to 50.3.
The markets are discounting a 5% chance for a +25 bp rate at the next FOMC meeting on December 12-13 FOMC and a 13% chance for that +25 bp rate at the next FOMC meeting on December 30-31 on January 2024. The markets are then discounting a 23% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 52% chance for that same -25 bp rate cut reduction at April 30-May 1, 2024. , FOMC meeting.
EUR/USD (^EURUSD) rose +0.39% on Friday. Dollar weakness Friday supported moderate gains in the euro. Also, an increase in the German New IFO business climate to a 4-month high was bullish for EUR/USD. In addition, Friday’s jump in the 10-year German bund yield to a 1-1/2-week high strengthened the euro’s interest rate differentials and supported the euro. Strength in the euro was limited by Friday’s dovage comments from ECB President Lagarde, who signaled that she supports a tax break from the ECB.
German New IFO business climate rose +0.4 to a 4-month high of 87.3, weaker than expectations of 87.5.
ECB President Lagarde said, “We have already done a lot on rates,” and the ECB is now at a point where it can pause and assess the impact of its policy tightening.
ECB Governing Council member Villeroy de Galhau said, “Barring surprises, I don’t think the ECB will raise interest rates again.”
ECB Governing Council member Holzmann said there was an “equal probability” of an ECB rate hike or cut in the second quarter of 2024.
USD/JPY (^USDJPY) fell -0.05% on Friday. On Friday, the yen posted modest gains against the dollar. Friday’s Japanese consumer price news showed that pressures remain above the BOJ’s 2.0% target, which may prompt the central bank to exit its ultra-easy monetary policy earlier than expected. Gains in the yen were capped on Friday by higher T-note yields and news that showed Japanese manufacturing activity this month contracted at the steepest pace in 9 months, a dovish factor for BOJ policy.
Japan Seven’s leading CI index was revised up by +0.2 to 108.9 from the previously reported 108.7.
Japan’s national CPI rose +3.3% y/y, weaker than expectations of +3.4% y/y. New national CPI ex-fresh food and energy decreased to +4.0% y/y from +4.2% y/y in October, weaker than expectations of +4.1% y/y and the slowest rate of increase in 7 months.
Japan’s New Jibun Bank manufacturing PMI fell -0.6 to 48.1, the steepest rate of contraction in 9 months.
December gold (GCZ3) Friday closed up +10.20 (+0.51%), and Dec silver (SIZ23) closed up +0.653 (+2.76%). Precious metals prices settled moderately higher on Friday, with silver posting a 2-1/2-month high. A weaker dollar on Friday was bullish for metal prices. Also, dovish comments on Friday from ECB President Lagarde, who said she favors a break in ECB rates, supported precious metals. On the downside for precious metals on Friday was an increase in global bond yields.
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