The dollar index (DXY00) today is up by +0.07% at a 2-1/2 week high.  The dollar is supported by today’s news of an unexpected increase in the US Nov import price index ex-petroleum, a hawkish factor for Fed policy.  The dollar is also seeing support from stronger interest rate differentials with today’s rise in the 10-year T-note yield to a 2-1/2 week high. 

Strength in stocks today has reduced liquidity demand for the dollar.  The dollar is also being undercut by expectations that the Fed will cut interest rates by -25 bp at next week’s FOMC meeting. 

The US Nov import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of no change.

The markets are discounting the chances at 97% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is up by +0.22% after recovering from a 2-1/2 week low.  The euro is seeing support from today’s rise in the 10-year German bund yield to a 2-1/2 week high.  The euro today initially moved lower on dovish comments from ECB Governing Council member Villeroy de Galhau, who said, "There will be more rate cuts next year," and the action by the Bundesbank to cut its 2024 German GDP estimate and inflation forecast, dovish factors for ECB policy.

Eurozone Oct industrial production was unchanged m/m, right on expectations, and Sep was revised upward to -1.5% m/m from the previously reported -2.0% m/m.

German trade news was weaker than expected as German Oct exports fell -2.8% m/m, weaker than expectations of -2.6% m/m and the biggest decline in 10 months.

The Bundesbank cut its German 2024 GDP estimate to -0.2% from a prior estimate of +0.3% and cut its 2024 inflation forecast to +2.5% from a prior estimate of +2.8%.

ECB Governing Council member Villeroy de Galhau said, "There will be more rate cuts next year," and I'm "rather comfortable with financial markets' forecasts" on more than 100 basis points of easing.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 53% chance for a -50 bp rate cut.

USD/JPY (^USDJPY) today is up by +0.60%.  The yen today dropped to a 2-1/2 week low against the dollar and has fallen each day this week.  The yen has carryover pressure from Thursday when a Reuters report said the BOJ sees no need to rush into further rate hikes and is leaning toward keeping interest rates steady when it meets next week.  Also, higher T-note yields today are weighing on the yen.  Today’s Japanese economic news was mixed for the yen as the Q4 Tankan large manufacturing business conditions index unexpectedly increased, but Oct industrial production was revised downward.

The Japan Q4 Tankan large manufacturing business conditions index rose +1 from Q3 to 14, better than expectations of no change at 13.

Japan Oct industrial production was revised downward by -0.2 to +2.8% m/m from the previously reported +3.0% m/m.

February gold (GCG25) today is down -31.30 (-1.16%), and March silver (SIH25) is down -0.754 (-2.38%).  Precious metals today added to Thursday’s sharp losses, with silver prices falling to a 1-1/2 week low.  Today’s rally in the dollar index to a 2-1/2 week high is bearish for metals prices. Also, higher global bond yields today and stock strength are weighing on precious metals.  In addition, today’s unexpected increase in the US Nov import price index ex-petroleum signals sticky price pressures that are hawkish for Fed policy.  Silver prices also came under pressure today after the Bundesbank cut its German 2024 GDP estimate to -0.2% from a prior estimate of +0.3% and after German Oct exports fell -2.8% m/m, the biggest decline in 10 months and bearish for industrial metals demand. 

Dovish comments today from ECB Governing Council member Villeroy de Galhau boosted demand for gold as a store of value when he said, "There will be more rate cuts next year."  Precious metals prices also have safe-haven support after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.