Dollar Slightly Lower as Bond Yields Decline

The dollar index (DXY00) on Friday fell by -0.08%.   The dollar Friday gave up an early advance and fell slightly after T-note yields retreated. The dollar Friday initially moved higher on strength in T-note yields and weakness in the yuan.  The yuan fell to a 2-week low against the dollar Friday after Chinese Covid infections surged to a record high and after the PBOC boosted stimulus and cut the reserve requirement ratio for banks.

EUR/USD (^EURUSD) on Friday rose by +0.02%.  The euro Friday posted modest gains.  EUR/USD Friday had negative carry-over from Thursday's account of the Oct 27 ECB meeting that said, "a few ECB members expressed a preference for increasing the refinancing rate by +50 bp."  The division among ECB policymakers shows support for an additional +75 bp rate hike fading and may prompt the ECB to hike rates by only +50 bp at the December policy meeting. 

Friday’s Eurozone economic news was mixed for the euro.  On the positive side, German Q3 GDP was revised upward to +0.4% q/q and +1.2% y/y from the initially reported +0.3% q/q and +1.1% y/y.

Conversely, German Dec GfK consumer confidence rose +1.7 to -40.2, weaker than expectations of -39.6.

USD/JPY (^USDJPY) on Friday rose +0.36%.  The yen was under pressure Friday on inflation concerns after Friday’s news showed that Tokyo’s Nov consumer prices ex-fresh food rose +3.6% y/y, the most in 40 years and above expectations of a +3.5% y/y increase.  The yen recovered from its worst levels after T-note yields gave up an early advance and turned lower.

December gold (GCZ2) on Friday closed up +8.40 (+0.48%), and December silver (SIZ22) closed up +0.063 (+0.29%).  Precious metals Friday posted modest gains, with silver climbing to a 1-week high.  A weaker dollar Friday supported metals prices. Also, gold gained on increased demand as a store of value after China boosted stimulus measures when the PBOC Friday reduced the reserve requirement ratio for most banks by 25 bp.  In addition, signs of higher global inflation boosted demand for gold as an inflation hedge after Tokyo’s Nov consumer prices ex-fresh food rose +3.6% y/y, the most in 40 years.  Silver prices garnered support on signs of stronger industrial metals demand after German Q3 GDP was revised upward to +0.4% q/q and +1.2% y/y from the initially reported +0.3% q/q and +1.1% y/y.

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