The dollar index (DXY00) on Friday fell -0.05% and posted a 7-1/4 month low. Strength in the Japanese yen and Chinese yuan Friday undercut the dollar. The yen rallied to a 7-1/2 month high Friday against the dollar, and the yuan climbed to a 6-month high against the dollar. Also, the strength in stocks Friday reduced the liquidity demand for the dollar. Higher T-note yields Friday limited losses in the dollar.Â
Friday’s U.S. economic news was hawkish for Fed policy and supportive of the dollar. Dec import price index ex-petroleum unexpectedly rose +0.8% m/m, the most in 9 months and above expectations of a -0.3% m/m decline. Also, the University of Michigan’s U.S. Jan consumer sentiment index rose +4.9 to a 9-month high of 64.6, stronger than expectations of 60.7. In addition, the University of Michigan’s Jan 5-10-year inflation expectations measure unexpectedly rose +0.1 to 3.0%, stronger than expectations of no change at 2.9%.
EUR/USD (^EURUSD) on Friday fell by -0.22% and posted an 8-1/2 month high.  The euro Friday fell back from an 8-1/2 month high and posted moderate losses. Lower European government bond yields Friday weakened the euro’s interest rate differentials and weighed on EUR/USD. Losses in the euro were limited by better-than-expected economic news and hawkish ECB comments.
Friday’s economic news supported EUR/USD after Eurozone Nov industrial production rose +1.0% m/m, stronger than expectations of +0.5% m/m.
Hawkish ECB comments Friday were bullish for the euro. Â ECB Governing Council member Kazaks said, "it is possible for core inflation to continue trending up even as headline inflation is coming down due to swings in energy prices."Â Therefore, borrowing costs in the Eurozone should rise "well into restrictive territory."Â Also, ECB Governing Council member Vujcic said inflation remains high and "the ECB's response should be to continue to tighten monetary policy."
USD/JPY (^USDJPY) on Friday fell by -1.04%.  The yen Friday added to Thursday’s rally and posted a 7-1/2 month high against the dollar.  Speculation that the BOJ will end its ultra-easy monetary policy as soon as next week has sparked short-covering in the yen. The yen also garnered support Friday from soaring Japanese government bond yields after the 10-year JGB bond yield rose to an 8-1/4 year high at 0.575%, well above the upper limit of the BOJ’s 0.00%-0.50% targeted 10-year yield range. The yen rallied Friday even after the BOJ announced two unscheduled bond purchases.Â
The BOJ boosted QE and announced unscheduled bond purchases for a second time on Friday after the first round of buying failed to reduce the 10-year JGB bond yield. The BOJ bought a record amount of bonds Friday, including 1.8 trillion yen ($14 billion) of one-to-25-year debt at market yields and 3.21 trillion yen of 10-year notes and futures-linked securities at a fixed yield of 0.5%.
The BOJ also said it would conduct additional outright purchases of Japanese government bonds on Monday, with the amounts to be determined by market conditions. The BOJ has conducted a combination of additional unlimited and fixed-amount purchase operations every business day since Dec 28, except for Jan 5, 10, and 12.Â
February gold (GCG3) on Friday closed up +22.90 (+1.21%), and March silver (SIH23) closed up +0.368 (+1.53%). Precious metals Friday rallied and extended Thursday’s gains, with gold posting an 8-1/2 month high and silver climbing to a 1-week high.  Precious metals pushed higher Friday on a decline in the dollar index to a 7-1/4 month low. Also, metal rose on carry-over support from Thursday’s benign U.S. Dec CPI report, which bolsters expectations for the Fed to dial back its rate-hike regime. In addition, record bond purchases Friday by the BOJ boosted demand for precious metals as a store of value.
More Forex News from Barchart
- Stocks Fluctuate as We Head Into a 3-Day Weekend
- Dollar Drops on Slower U.S. Inflation and a Rally in Stocks
- Stocks Rally After As-Expected CPI Report
- Dollar Little Changed on Lower Bond Yields and Stronger Stocks
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. For more information please view the Barchart Disclosure Policy here.
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