Dollar Weighed Down as T-note Yields Decline

The dollar index (DXY00) on Friday fell by -0.21%.  The dollar Friday tumbled to a 5-month low.  A slide in T-note yields Friday undercut the dollar. Friday’s stronger-than-expected U.S Nov payroll report initially pushed bond yields and the dollar higher. However, T-note yields moved lower for the remainder of the day and weighed on the dollar.  Also, the Chinese yuan rallied to a 2-1/2 week high Friday and weighed on the dollar as China continues to ease Covid restrictions, bolstering optimism about an economic reopening. 

Friday’s U.S. Nov payroll report was better-than-expected and bullish for the dollar.  Nov nonfarm payrolls rose +263,000, stronger than expectations of +200,000.  Also, the Nov unemployment rate was unchanged at 3.7%, right on expectations.  In addition, Nov average hourly earnings eased to +5.1% y/y from +5.6% y/y in Oct but were still higher than expectations of +4.6% y/y.

Fed comments Friday were hawkish for Fed policy and bullish for the dollar.  Chicago Fed President Evans said in order to cool price pressures, "we probably are going to have a slightly higher peak of the fed funds rate, even as we likely will step down the pace of rate increases."

Also, Richmond Fed President Barkin said the U.S. "labor supply looks like it will remain constrained,"

which could keep upward pressure on inflation and require firms to spend more to attract and keep their workers.

EUR/USD (^EURUSD) on Friday rose by +0.14%.  The euro Friday climbed to a 5-month high.  Weakness in the dollar was supportive of the euro.  Also, an easing of Eurozone price pressures was bullish for EUR/USD after Eurozone Oct PPI posted its slowest pace of increase in 9 months and the German Oct import price index rose at the slowest pace in a year. 

German trade data was bearish for EUR/USD after Oct exports fell -0.6% m/m, weaker than expectations of -0.2% m/m.  Likewise, German Oct imports fell -3.7% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 9 months.

Eurozone price data was weaker than expected.  The Eurozone Oct PPI rose +30.8% y/y, weaker than expectations of +31.7% y/y and the slowest pace of increase in 9 months.  Also, the German Oct import price index rose +23.5% y/y, falling back from the +29.8% y/y gain in Sep and the slowest pace of increase in a year.

USD/JPY (^USDJPY) on Friday fell by -0.75%.  The yen Friday moved higher for the fifth consecutive session and posted a 3-1/2 month high.   A selloff in the dollar index to a 5-month low Friday sparked short covering in the yen.  The yen also had carry-over support from Thursday on speculation the BOJ could review its ultra-loose policies after BOJ board member Tamura said the BOJ should conduct a policy assessment and the right moment for it could come soon.

February gold (GCG3) on Friday closed down -5.60 (-0.31%), and March silver (SIH23) closed up +0.409 (+1.79%).  Precious metals Friday settled mixed, with silver posting a 7-month high.  A slump in the dollar index Friday to a 5-month low was bullish for metals prices.  Gold prices fell back from a 3-1/2 month high Friday and moved moderately lower after the stronger-than-expected U.S. Nov payroll report may keep the Fed aggressively raising interest rates.   Silver prices found support Friday on hopes that economic activity and industrial metals demand will improve in China as the government eases Covid restrictions.

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