The dollar index (DXY00) on Thursday rose by +0.73%. The dollar Thursday rose on carry-over support from Wednesday when the Fed raised its median forecast for interest rates at the end of 2023 to 5.125% from 4.625% projected in September, suggesting FOMC members see another +75 bp worth of rate hikes. Gains in the dollar accelerated Thursday after stocks plunged, which boosted the liquidity demand for the dollar.
Thursday’s U.S. economic news was primarily bearish for the dollar. Nov retail sales fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 11 months. Also, Nov manufacturing production fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 5 months. The Dec Philadelphia Fed business outlook survey rose +5.6 to -13.8, weaker than expectations of -10.0. On the positive side, weekly initial unemployment claims unexpectedly fell -20,000 to an 11-week low of 211,000, showing a stronger labor market than expectations of an increase to 232,000.
EUR/USD (^EURUSD) on Thursday fell by -0.44%.  The euro Thursday fell back from a 6-month high and posted moderate losses. Dollar strength Thursday sparked long liquidation in the euro. Also, Thursday’s action by the ECB to cut its 2023 Eurozone GDP estimate was bearish for the euro. EUR/US Thursday initially rallied to a 6-month high after President Lagarde said that we should expect the ECB to raise interest rates at a +50 bp pace for a period of time. Also, the 10-year German bund yield jumped to a 1-month high Thursday, strengthening the euros’ interest rate differentials.Â
The ECB, as expected, raised its main refinancing rate by +50 bp to 2.50% and said, "interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target."
The ECB lowered its 2023 Eurozone GDP forecast to 0.5% from a previous estimate of 0.9% and raised its 2023 Eurozone inflation forecast to 6.3% from a previous estimate of 5.5%.
ECB President Lagarde said, "it is pretty much obvious that on the basis of the data that we have at the moment, significant rise at a steady pace means we should expect to raise interest rates at a +50 bp pace for a period of time."
Eurozone Nov new car registrations rose +16.3% y/y to 830,000, the biggest increase in 1-1/2 years.
The German Nov wholesale price index eased to 14.9% y/y from 17.4% y/y in Oct, the slowest pace of increase in 14 months.
USD/JPY (^USDJPY) on Thursday rose by +1.64%. The yen Thursday fell sharply to a 2-week low on central bank divergence. The Fed on Wednesday signaled higher interest rates for longer, and the ECB on Thursday said it intends to continue to raise interest rates at a steady pace. Meanwhile, the BOJ is maintaining QE and record low-interest rates. The yen retreated Thursday despite lower T-note yields.Â
Thursday’s Japanese trade news was bullish for the yen. Japan Nov exports rose +20.0% y/y, stronger than expectations +19.7% y/y. Also, Nov imports rose +30.3% y/y, stronger than expectations of +26.9% y/y.
February gold (GCG3) on Thursday closed down -30.9 (-1.70%), and March silver (SIH23) closed down -0.831 (-3.44%). Precious metals Thursday fell sharply, with gold falling to a 1-week low. Metals prices were under pressure Thursday from a stronger dollar and the prospects for more interest rate hikes. Fed Chair Powell on Wednesday signaled the Fed would continue to raise rates next year, and ECB President Lagarde said today that the ECB would raise interest rates at a steady pace for the foreseeable future. Gold also fell after the 10-year breakeven inflation expectations rate Thursday dropped to a 2-1/2 month low, curbing demand for gold as an inflation hedge.
More Precious Metal News from Barchart
- Stocks Plunge as Fed and ECB Signal Higher Interest Rates
- Dollar Weakens as FOMC Slows Pace of Rate Hikes
- Stocks Move Lower After Fed Raises Rates Half a Point
- Dollar Drops to 6-Month Low on Weak U.S. CPI
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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