The dollar index (DXY00) on Friday posted a 5.5-month high but gave up most of its advance and finished up +0.03%. The dollar found support on Friday's hawkish comments from Boston Fed President Susan Collins and Dallas Fed President Lorie Logan, who said they favored keeping interest rates steady. In addition, an upward revision to the University of Michigan US Nov consumer sentiment index was bullish for the dollar.
The dollar had early support on Friday from weakness in equity markets, but the support faded as stocks rebounded. The dollar also came under pressure Friday on dovish comments from New York Fed President John Williams, who said he sees room for a Fed rate cut in the "near term."
The US Nov S&P manufacturing PMI fell -0.6 to 51.9, close to expectations of 52.0.
The University of Michigan US Nov consumer sentiment index was revised upward by +0.7 to 51.0, stronger than expectations of 50.6.
The University of Michigan's US Nov 1-year inflation expectations were unexpectedly revised lower to 4.5% from the previously reported 4.7%. Also, the Nov 5-10 year inflation expectations were unexpectedly revised lower to 3.4% from the previously reported 3.6%.
New York Fed President John Williams said, "he still sees room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral," as downside risks to employment have increased while upside risks to inflation have eased.
Boston Fed President Susan Collins said that holding interest rates steady would be "appropriate for now" as inflation is likely to stay elevated for some time.
Dallas Fed President Lorie Logan said, "With two rate cuts now in place, I'd find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly."
The markets are discounting a 66% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
EUR/USD (^EURUSD) fell by -0.15% Friday and posted a new 2-week low. The unexpected contraction in Eurozone manufacturing activity is bearish for the euro, following the Eurozone Nov S&P manufacturing PMI falling to a 5-month low. The euro fell to its lows on Friday after Ukraine and its European allies rejected key parts of the US-Russian plan to end the war in Ukraine.
Losses in the euro were limited Friday amid hawkish comments from ECB Vice President Luis de Guindos, who said the European economy is performing better than expected and that current interest rates are "appropriate."
The Eurozone Nov S&P manufacturing PMI unexpectedly fell -0.3 to 49.7, weaker than expectations of an increase to 50.1 and the steepest pace of contraction in 5 months. The Nov S&P composite PMI fell -0.1 to 52.4, weaker than expectations of no change at 52.5.
ECB Vice President Luis de Guindos said, "The Eurozone economy is performing better than we expected just three or four months ago," and the current level of interest rates is "appropriate."
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Friday fell by -0.67%. The yen rallied on Friday on comments from Japanese Finance Minister Katayama, who issued a stern warning about recent yen movements and said intervention could be used to support the yen. Better-than-expected Japanese economic news on trade and manufacturing activity on Friday also supported the yen. In addition, lower T-note yields on Friday were bullish for the yen.
On Thursday, the yen tumbled to a 10-month low against the dollar amid concerns about Japan's debt burden, after the Japanese government approved a 17.7 trillion yen ($112 billion) stimulus package, higher than the 13.9 trillion yen package released last year by former Prime Minister Ishiba.
Japanese trade news was better than expected, with Oct exports rising 3.6% y/y, stronger than the +1.1% y/y expected. Oct imports unexpectedly rose +0.7% y/y, stronger than expectations of -1.0% y/y.
Japan's Oct national CPI rose +3.0% y/y, right on expectations. Oct national CPI ex-fresh food and energy rose +3.1% y/y, right on expectations.
The Japan Nov S&P manufacturing PMI rose +0.6 to 48.8. The Nov S&P services PMI was unchanged at 53.1.
Japanese Finance Minister Katayama said, "The government will take appropriate action against disorderly FX moves, including those driven by speculation as needed, and that FX intervention is naturally something we can consider."
The markets are discounting a 22% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) on Friday closed up +19.50 (+0.48%), and December COMEX silver (SIZ25) closed down -0.388 (-0.77%).
Gold and silver prices settled mixed on Friday, with silver falling to a 2-week low. This week's equity market slump boosted demand for precious metals as a safe haven. Also, dovish comments on Friday from New York Fed President John Williams boosted demand for precious metals as a store of value when he said he sees room for a Fed rate cut in the "near term." Mr. Williams's comments raised the chance of a Fed rate cut at the December FOMC meeting to 66% on Friday from 35% on Thursday. Precious metals continue to have some underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed's independence.
Friday's rally in the dollar index to a 5.5-month high is bearish for precious metals. Also, hawkish central bank comments on Friday weighed on precious metals after Boston Fed President Susan Collins, Dallas Fed President Lorie Logan, and ECB Vice President Luis de Guindos said that current interest rates are appropriate. In addition, easing inflation expectations curbed demand for gold as an inflation hedge, as the 10-year breakeven inflation rate fell to a 6.5-month low of 2.239% on Friday.
Silver prices also retreated on Friday amid concerns about industrial metals demand, following the US Nov S&P manufacturing PMI, which fell more than expected, and the Eurozone Nov S&P manufacturing PMI, which unexpectedly contracted at its steepest pace in 5 months.
Strong central bank demand for gold is supportive of prices, following the most recent news that showed bullion held in China's PBOC reserves rose to 74.09 million troy ounces in October, the twelfth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported that global central banks purchased 220 MT of gold in Q3, up 28% from Q2.
Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices. Holdings in gold and silver ETFs have recently fallen after posting 3-year highs on October 21.
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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