Dollar Gains on Hawkish Fed Comments

The dollar index (DXY00) on Thursday rose by +0.36%.  The dollar rose Thursday on comments from St. Louis Fed President Bullard, who said interest rates need to increase further to reach a restrictive level, and from Minneapolis Fed President Kashkari, who said the Fed is "not there yet" on ending its progression of interest rate hikes. Also, higher T-note yields Thursday supported moderate gains in the dollar.  In addition, weakness in stocks sparked some liquidity demand for the dollar. 

Thursday’s U.S. economic news was mixed for the dollar.  On the bullish side, weekly initial unemployment claims unexpectedly fell -4,000 to 222,000, showing a stronger labor market than expectations of an increase to 228,000.  Also, Oct housing starts fell -4.2% m/m to 1.425 million, stronger than expectations of 1.41 million.  On the negative side, Oct building permits, a proxy for future construction, fell -2.4% m/m to a 2-year low of 1.526 million, although that was stronger than expectations of 1.514 million.  Also, the Nov Philadelphia Fed business outlook survey unexpectedly fell -10.7 to a 2-1/2 year low of -19.4, weaker than expectations of an increase to -6.0.

Fed comments Wednesday were hawkish for Fed policy and bullish for the dollar.  St. Louis Fed President Bullard said, "thus far, the change in the monetary-policy stance appears to have had only limited effects on observed inflation, and to attain a sufficiently restrictive level, the policy rate will need to be increased further" to between 5% and 7%. Also, Minneapolis Fed President Kashkari said he's not seeing much evidence of underlying demand cooling and that the Fed is "not there yet" on ending its progression of interest rate hikes.

EUR/USD (^EURUSD) on Thursday fell by -0.33%.  A stronger dollar Thursday weighed on the euro. Also, EUR/USD is being undercut by recent ECB dovish comments that signal the ECB may slow its pace of interest rate hikes to 50 bp from 75 bp at next month’s meeting. 

Eurozone Oct CPI was revised downward by -0.1 to a record 10.6% y/y from the initially reported 10.7% y/y.

Eurozone Oct new car registrations rose +12.2% y/y to 746,000, the most in 17 months.

USD/JPY (^USDJPY) on Thursday rose by +0.50%.  A jump in T-note yields Thursday weighed on the yen. The yen was also under pressure from Thursday’s report from Goldman Sachs that predicts a less than 50% chance that the BOJ will raise interest rates next year due to the government’s concern over the bleak economic outlook. 

Thursday’s Japanese trade news was mixed for the yen.  Japan Oct exports rose +25.3% y/y, weaker than expectations of +29.3% y/y.  However, Japan Oct imports rose +53.5% y/y, stronger than expectations of +50.0% y/y and the most in 42 years.

December gold (GCZ2) Thursday closed down -12.80 (-0.72%), and December silver (SIZ22) closed down -0.549 (-2.55%).  Precious metals prices Thursday posted moderate losses, with silver falling to a 1-week low.  Precious metals prices were undercut by a stronger dollar and higher global bond yields. In addition, hawkish comments Thursday from St. Louis Fed President Bullard were bearish for metals when he said interest rates need to be raised further to attain a sufficiently restrictive level.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Tuesday.

• Stocks Slump on Hawkish Fed Official’s Comment
• Dollar Slightly Weaker on Lower Bond Yields
• Stocks Decline on Weakness in Retailers and Chip Stocks
• Dollar Falls Back as Signs of Slower Inflation May Slow Fed Rate Hikes