The dollar index (DXY00) on Friday fell by -0.35%. The dollar Friday added to Thursday’s losses and dropped to a 6-1/2 month low. A stronger yuan weighed on the dollar Friday as the yuan climbed to a 4-month high against the dollar after the PBOC vowed to support the expansion of domestic demand. Month and year-end liquidation of long dollar positions Friday also undercut the dollar. The dollar recovered from its worst levels Friday after T-note yields rose and after stocks declined, which sparked some liquidity demand for the dollar.
Friday’s U.S economic news was bullish for the dollar after the Dec MNI Chicago PMI rose +7.7 to 44.9, stronger than expectations of 40.0.
EUR/USD (^EURUSD) on Friday rose by +0.31%. The euro Friday posted a fresh 2-week high after the 10-year German bund yield jumped to an 11-year high and strengthened the euro’s interest rate differentials. Also, hawkish comments from ECB Council member Stournas gave the euro a lift when he said the ECB still needs to raise interest rates significantly. In addition, an easing of the energy crisis supported EUR/USD after European nat-gas prices Friday tumbled to a 10-1/4 month low.
ECB Governing Council member Stournas said the ECB still needs to raise interest rates significantly but at a sustained pace in order to set them at levels that are restrictive enough to ensure a timely return of inflation to the medium-term target of 2%.
Spain's Dec CPI (EU harmonized) rose +5.6% y/y, weaker than expectations of +5.8% y/y and the slowest pace of increase in 13 months. Spain is the Eurozone's fourth-largest economy.
USD/JPY (^USDJPY) on Friday fell by -1.52%. The yen Friday rallied to a 1-1/2 week high. Speculation that the BOJ will end its negative-rate policy and raise interest rates next year has fueled short covering in the yen. The yen rose against the dollar Friday even after the BOJ announced additional bond purchases for the third straight day.
On Friday, the Bank of Japan (BOJ) announced the third day of unscheduled bond purchases. The BOJ said it would buy unlimited amounts of two-year bonds at a yield of +0.04% and five-year debt at 0.24%, along with a total of 700 billion yen of one-to-10-year bonds and 300 billion of 10-to-25-year debt. The BOJ's bond purchases climbed to about 17 trillion yen ($128 billion) in December, a monthly record, according to Bloomberg data.
February gold (GCG3) on Friday closed up +0.20 (+0.01%), and March silver (SIH23) closed down -0.210 (-0.87%). Precious metals Friday settled mixed. A weaker dollar Friday was bullish for metals prices after the dollar index dropped to a 6-1/2 month low. Gold also found support on increased demand as a store of value after the BOJ boosted QE and announced additional bond purchases for the third consecutive session. Gains in gold were limited due to higher global bond yields. Silver prices Friday were also under pressure on concern that widespread Covid outbreaks in China will curb economic activity and industrial metals demand.
More Forex News from Barchart
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- Dollar Slides as Bond Yields Fall and Stocks Rally
- The Brazilian Real and Commodities
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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