Dollar Index Rises Amid CB Shifts and Commodity Pressure (30 Dec - 03 Jan)

The Dollar Index ended the week marginally higher, reflecting diminished expectations for rate cuts in 2025, now reduced to 35 basis points.

The EUR/USD pair weakened following dovish comments from ECB President Christine Lagarde, signaling a cautious approach to future monetary tightening.

The GBP/USD declined as three members of the Bank of England's Monetary Policy Committee supported a rate cut, coupled with Q3 GDP data suggesting further easing may be on the horizon.

In Japan, the yen faced downward pressure from mixed economic data and the Bank of Japan’s cautious stance on rate hikes. While higher Tokyo inflation figures bolstered arguments for potential increases, broader uncertainty tempered market sentiment.

Gold experienced a relatively quiet week, weighed down by a sparse economic calendar and geopolitical stagnation. The Federal Reserve's hawkish outlook and scaled-back expectations for 2025 rate cuts further pressured the metal. Silver continued to face headwinds, driven by China's economic challenges, troubles in the solar energy sector, and ongoing risks of yuan devaluation.

U.S. Treasury yields showed mixed performance, with 2-year yields remaining steady at 4.32% and 10-year yields inching up to 4.58%. These movements reflect persistent market caution as investors navigate the Fed’s policy trajectory and broader economic uncertainty.

Initial Jobless Claims

U.S. initial jobless claims declined by 1,000 to 219,000 during the second week of December, coming in below the forecast of 224,000 and marking the lowest level since the seven-month low of 213,000. This reflects a tight labor market and aligns with the Federal Reserve's view that inflation poses a greater risk than labor market softness, supporting restrictive interest rates. However, continuing unemployment claims increased to 1.91 million, the highest in three years, indicating longer job searches. The four-week moving average rose slightly to 226,000, while unadjusted claims increased by 22,663, with notable rises in states such as New Jersey and Tennessee.

U.K. GDP

The U.K. economy came to a halt in Q3 2024, with GDP growth revised downward to 0.0% from the initial estimate of 0.1%. The services sector recorded no growth, with a 0.6% contraction in financial activities, while production shrank by 0.4%, driven by a 2% decline in energy supply. Construction rose by 0.7%. On the expenditure side, exports fell 0.5%, imports dropped 2.5%, and household spending remained steady at 0.5%. Business investment outperformed expectations with a 1.9% increase, but gross capital formation declined by 0.6%, largely due to fewer valuable acquisitions.

Durable Goods Orders (November)

U.S. durable goods orders decreased by 1.1% month-on-month in November to $285.1 billion, exceeding the forecasted decline of 0.4%. Transportation equipment led the contraction with a 2.9% drop, alongside declines in capital goods and electronics. Excluding transportation, orders fell by 0.1%. However, non-defense capital goods orders excluding aircraft rose 0.7%, marking the largest increase since August 2023 and signaling a modest recovery in business investment.

New single-family home sales in the U.S. climbed 5.9% month-on-month in November to an annualized rate of 664,000, surpassing expectations of 650,000. Sales grew significantly in the South (+13.9%) and Midwest (+17.3%), while declines were recorded in the West (-7.5%) and Northeast (-41%). The median home price was $402,600, with the inventory representing 8.9 months of supply.

Currencies

The Dollar Index ended the week slightly higher, strengthened by reduced expectations for 2025 rate cuts (35 bps) and optimism surrounding Trump-era policies. EUR/USD weakened after ECB President Lagarde highlighted high service inflation despite nearing the inflation target. GBP/USD fell amid dovish signals from the Bank of England and stagnation in Q3 GDP. The yen continued to weaken despite rising Tokyo inflation, as mixed economic data and the Bank of Japan’s cautious approach to rate hikes weighed on sentiment. USD/CAD gained as revised GDP forecasts stoked rate cut speculation, while the yuan declined after the PBoC injected CNY 300 billion in liquidity but withdrew a net CNY 1.15 trillion due to maturing loans.

Commodities

Gold saw little movement during the week, constrained by a sparse economic calendar and geopolitical stagnation. The Federal Reserve's hawkish policy stance and scaled-back rate cut expectations for 2025 maintained downward pressure on prices. Silver faced additional challenges from China's slowing economy and issues within the solar sector, with yuan devaluation risks further weighing on sentiment.

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