The dollar index (DXY00) on Tuesday rose by +0.26% and posted a 1-1/4 month high. On Tuesday, the dollar recovered from overnight losses and moved higher on strength in T-note yields. Also, a repricing of chances for Fed rate cuts is boosting the dollar as swap markets now discount the chances of a Fed rate cut at the March FOMC meeting at 48%, below the more than 60% chance the market priced in earlier this month.
Tuesday’s U.S. economic news was weaker-than-expected and bearish for the dollar after the Jan Richmond Fed manufacturing survey current conditions unexpectedly fell -4 to a 3-1/2 year low of -15, weaker than expectations of an increase to -8.
The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on Jan 30-31 and a 48% chance for that -25 bp rate cut for the following meeting on March 19-20.
EUR/USD (^EURUSD) on Tuesday fell by -0.31% and posted a 1-1/4 month low. A rebound in the dollar Tuesday weighed on the euro. Losses in the euro accelerated after the Eurozone Jan consumer confidence index unexpectedly declined.
The Eurozone Jan consumer confidence index unexpectedly fell -1.0 to -16.1, weaker than expectations of an increase to -14.3.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and 16% for the following meeting on March 7.
USD/JPY (^USDJPY) on Tuesday rose by +0.18%. The yen on Tuesday whipsawed lower and then higher on BOJ actions and comments from BOJ Governor Ueda. The yen initially fell Tuesday after the BOJ kept its short-term rate at -0.1% and retained its current yield-curve control parameters. However, the yen recovered and moved higher after the BOJ raised its 2024 GDP forecast and cut its 2024 CPI forecast and after BOJ Governor Ueda said the BOJ would raise rates if its price goal is in sight. Meanwhile, the yen gave up its advance and turned lower after T-note yields rose.
As expected, the BOJ voted 9-0 to maintain its policy rate at -0.1% and keep the 10-year JGB yield target at about 0%.
The BOJ raised its 2024 GDP forecast to +1.2% from +1.0% previously and cut its 2024 core CPI estimate to 2.4% from 3.8%.
BOJ Governor Ueda said certainty in the BOJ's outlook is rising gradually, and policy will remain accommodating even if the BOJ ends negative rates.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 24% for its next meeting on March 19 and at 50% for the following meeting on April 26.
February gold (GCG4) Tuesday closed +3.60 (+0.18%), and Mar silver (SIH24) closed +0.166 (+0.74%). Precious metals on Tuesday posted moderate gains. Gold found support Tuesday on increased demand as a store of value after the BOJ kept its negative interest rate policy. Silver found support Tuesday after the BOJ raised its 2024 Japan GDP forecast, a positive factor for industrial metals demand.
Limiting gains in precious metals on Tuesday was a rally in the dollar index to a 1-1/4 month high. Also, higher global bond yields Tuesday weighed on precious metals. Gold prices were under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Monday.
More Precious Metal News from Barchart
- Stocks Waver on Mixed Corporate Earnings Results
- Dollar Recovers as Fed Rate Cut Chances Recede
- Stock Indexes Post Record Highs on Economic Optimism and Strong Earnings
- Dollar Falls on Reduced Liquidity Demand as Stocks Rally
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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