The dollar index (DXY00) rose to a new 1.5-year high today and is up +0.03%. The dollar is supported by weakness in stocks today, which boosts demand for dollar liquidity. The dollar is also climbing amid higher T-note yields, after the 10-year T-note yield rose to a 4-week high of 5.156%, strengthening the dollar’s interest-rate differentials. The dollar also found support today on hawkish Fed comments after Chicago Fed President Austan Goolsbee said the Fed “has work to do” on inflation, and Boston Fed President Susan Collins said that she favors tighter Fed monetary policy. Dollar gains are limited today after US Oct PPI rose less than expected.
US Oct PPI final demand rose +0.3% m/m and +6.5% y/y, weaker than expectations of +0.4% m/m and +6.6% y/y. Oct PPI ex-food and energy rose +0.3% m/m and +5.0% y/y, right on expectations.
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Chicago Fed President Austan Goolsbee said the Fed “has work to do” on inflation, as the AI build-out is heating up the economy on top of energy costs.
Boston Fed President Susan Collins said that tighter Fed monetary policy may be needed to cool prices.
The markets are now pricing in a 100% chance of a +25 bp rate hike at the FOMC’s next meeting on December 8-9.
EUR/USD (^EURUSD) fell to a fresh 1.5-year low today and is down -0.03%. The euro is under pressure today from a stronger dollar. Also, higher crude oil prices today are bearish for the Eurozone economy and the euro, as Europe imports most of its energy. Losses in the euro are limited after Eurozone Q3 GDP was left unrevised.
Eurozone Q3 GDP was left unrevised at +0.4% q/q and +1.3% y/y, as expected.
The markets are now pricing in a 92% chance of a +25 bp rate hike at the ECB’s next policy meeting on December 17.
USD/JPY (^USDJPY) is up by +0.02% today. The yen slipped to a new 2.25-month low against the dollar today. Higher T-note yields today are weighing on the yen, along with stronger crude oil prices, which are negative for Japan’s economy and the yen, as Japan imports more than 90% of its energy. In addition, today’s rally in the Nikkei Stock Index to a 1-week high reduced safe-haven demand for the yen.
Losses in the yen are limited on concern that weakness in the yen past 160 per dollar could prompt intervention in currency markets by Japanese authorities to support the yen. Three times over the past few months, US and Japanese authorities intervened jointly in the forex market to support the yen when it rose above 160 per dollar.
