Dollar Little Changed on Lower Bond Yields and Stronger Stocks

The dollar index (DXY00) on Wednesday was unchanged.  A decline in T-note yields Wednesday weighed on the dollar. Also, strength in stocks Wednesday curbed liquidity demand for the dollar.  Weakness in the yen Wednesday was supportive for the dollar as the yen fell back after the BOJ boosted QE. 

Comments Wednesday from Boston Fed President Collins were dovish for Fed policy and bearish for the dollar when she said she's leaning toward supporting a +25 bp rate hike at the February FOMC meeting.  Collins said, "adjusting slowly gives more time to assess the incoming data before we make each decision, as we get close to where we're going to hold. Smaller changes give us more flexibility."

EUR/USD (^EURUSD) on Wednesday rose by +0.22% and posted a fresh 7-month high.  Hawkish comments Wednesday from ECB Governing Council member Holzmann boosted the euro when he said only a slowdown in core inflation could alter the ECB's resolve to raise interest rates.  In addition, Wednesday’s better-than-expected Italian retail sales report was supportive of the euro. 

ECB Governing Council member Holzmann said while there's hope that headline consumer-price gains have peaked, that's not the case for underlying inflation.  Only a slowdown in core inflation can alter the ECB's resolve to raise interest rates.

Italy’s Nov retail sales unexpectedly rose +0.8% m/m, stronger than expectations of -0.3% m/m.

USD/JPY (^USDJPY) on Wednesday rose by +0.12%.   The yen on Wednesday posted moderate losses after the BOJ boosted QE when it announced unscheduled debt purchases.  The BOJ offered to buy 500 billion yen of 1-to-10-year notes and 250 billion of debt due in more than 10 years.  It also offered to buy unlimited quantities of 1-to-5-year securities at fixed yields.  The BOJ has conducted a combination of additional unlimited and fixed-amount purchase operations every business day since Dec 28, except for Jan 5 and Jan 10.  Lower T-note yields Wednesday limited losses in the yen.

Wednesday’s Japanese economic news was bearish for the yen after the Nov leading index CI fell -1.0 to a 23-month low of 97.6, right on expectations.

February gold (GCG3) on Wednesday closed up +2.40 (+0.13%), and March silver (SIH23) closed down -0.184 (-0.78%).  Precious metals Wednesday settled mixed, with gold climbing to an 8-month high.  Lower global bond yields Wednesday were bullish for metals.  Gold also found support on increased demand as a store of value after the BOJ boosted QE Wednesday with unscheduled bond purchases. 

Metals fell back from their best levels Wednesday after stocks rallied, which reduced safe-haven demand for precious metals.  Silver on Wednesday initially moved higher on carry-over support from a rally in copper prices to a 7-month high on hopes that the reopening of China’s economy will boost industrial metals demand.

• Stocks Climb on Hopes for U.S. Consumer Prices to Soften
• Dollar Firms as T-note Yields Climb
• Stocks Little Changed as Powell Refrains from Commenting on Monetary Policy
• Dollar Drops on Expectations for a Less-Aggressive Fed