Dollar Moves Lower on Weak U.S. Economic News

The dollar index (DXY00) on Monday fell by -0.18%.  On Monday, the dollar gave up early gains and posted moderate losses as weaker-than-expected U.S. economic news on October new home sales and the Nov Dallas Fed manufacturing outlook weighed on the dollar.  Also, lower T-note yields on Monday weakened the dollar’s interest rate differentials and undercut the dollar.

Monday’s U.S. economic news was weaker than expected and bearish for the dollar.  Oct new home sales fell -5.6% m/m to 679,000, weaker than expectations of 721,000.  Also, the Nov Dallas Fed manufacturing outlook of general business activity unexpectedly fell -0.7 to a 4-month low of -19.9, weaker than expectations of an increase to -16.0.

The markets are discounting a 4% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 12% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024.  The markets are then discounting a 16% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 56% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting. 

EUR/USD (^EURUSD) on Monday rose by +0.12%.   On Monday, the euro recovered early losses and posted modest gains.  Dollar weakness on Monday was bullish for the euro.  Also, hawkish comments Monday from ECB President Lagarde gave EUR/USD a boost when she said inflation remains too high and has been high for too long and that the ECB is keeping a close eye on the exchange rate.

USD/JPY (^USDJPY) on Monday fell by -0.54%.  The yen Monday rallied moderately against the dollar.  Stronger than expected Japanese October producer services prices may prompt the BOJ to tighten monetary policy and is bullish for the yen after Japan Oct PPI services prices rose more than expected.  Gain in the yen accelerated Monday as T-note yields declined.

Japan Oct PPI services prices rose +2.3% y/y, stronger than expectations of +2.1% and the largest increase in 3-3/4 years.

December gold (GCZ3) Monday closed up +9.40 (+0.47%), and Dec silver (SIZ23) closed up +0.340 (+1.49%).  Precious metals prices on Monday posted moderate gains, with gold climbing to a 1-month high and silver climbing to a 3-month high.  A weaker dollar on Monday was supportive of metals prices.  Also, lower global bond yields on Monday were bullish for precious metals.  In addition, strength in Japanese producer service prices boosted demand for gold as an inflation hedge after Japan Oct PPI services prices rose +2.3% y/y, stronger than expectations of +2.1% and the biggest increase in 3-3/4 years.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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