The dollar index (DXY00) on Monday rose slightly by +0.02%. The dollar found support on Monday as stock market weakness boosted some liquidity demand for the dollar. Also, Monday’s stronger-than-expected Nov pending home sales report was supportive of the dollar.
The dollar fell from its best level after the Dec Dallas Fed manufacturing outlook of general business activity unexpectedly declined.
The markets are discounting the odds at 16% for a -25 bp rate cut at the FOMC’s next meeting on January 27-28.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills in mid-December. The dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar. Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.
US Nov pending home sales rose +3.3% m/m, stronger than expectations of +0.9% m/m.
The US Dec Dallas Fed manufacturing outlook of general business activity unexpectedly fell -0.5 to -10.9 versus expectations of an increase to -6.0.
EUR/USD (^EURUSD) on Monday fell by -0.03%. The euro came under pressure on Monday after there was no breakthrough seen in weekend talks to end the Russian-Ukrainian war. Also, lower Eurozone government bond yields are pressuring the euro after the 10-year German bund yield fell to a 3-week low on Monday at 2.824%, weakening the euro’s interest rate differentials.
Swaps are pricing in a 0% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.
USD/JPY (^USDJPY) on Monday fell by -0.35%. The yen rose against the dollar on Monday after the summary of the December 19 BOJ meeting showed that some policymakers signaled Japan’s real interest rate remains very low, suggesting further rate increases are likely. The yen is also supported today by lower T-note yields.
#Dollar #Gains #Precious #Metals #Sink #YearEnd #Liquidation