Dollar Surges to 109.4 as Gold Hits $2,654 (6-10 January)

The dollar index hit 109.4, its highest since October 2022, driven by strong U.S. economic growth forecasts, elevated interest rates, and capital inflows, while Trump’s policies boosted growth and inflation expectations.

The euro fell to $1.0220, its lowest since November 2022, due to Europe’s weak economic outlook, political instability, and the ECB’s dovish stance, while the UK economy stagnated with zero Q3 growth, further weakening the pound.

Gold and silver ended the week positively, supported by China’s strong manufacturing PMI and signs of economic growth, despite weaker U.S. PMI and a 7% drop in China’s 10-year bond yields.

Initial Jobless Claims

For the week ending December 28, initial unemployment claims fell by 9,000 to 211,000 from the revised 220,000. The 4-week moving average dropped by 3,500 to 223,250, after a revision from 226,500 to 226,750.

Chicago PMI

The Chicago Business Barometer fell 3.3 points to 36.9 in December, its lowest since May 2024 and below the 2024 average. New Orders dropped 13.5 points to the second-lowest since May 2020, while Production fell 2.9 points to its lowest since January 2009, excluding the pandemic. Employment rose 11.9 points to its highest since November 2023, and Supplier Deliveries increased 9.7 points to their highest since August 2022. Order Backlogs rose 2.8 points, while Prices Paid dropped 5.8 points to a low since July 2024. Inventories fell 3.0 points to the lowest since October 2009, excluding March 2020. The survey was conducted December 1-11, 2024.

SP Global Manufacturing PMI

The S&P Global US Manufacturing PMI fell to 49.4 in December 2024, down from 49.7 in November and below market expectations of 49.8, marking the sixth consecutive month of contraction. Factory output declined at the fastest rate in 18 months, driven by reduced new orders and weaker export demand from Europe. Despite this, factories increased hiring but cut purchasing activity due to expected lower demand. Input cost pressures surged, leading to higher output prices.

China Manufacturing PMI

The Caixin China General Manufacturing PMI fell to 50.5 in December 2024 from 51.5 in November, below expectations of 51.7, but marked the third month of growth. Output and new orders grew more slowly, foreign orders contracted, and employment fell for the fourth month, leading to rising backlogs. Purchasing activity rose for a third month, vendor performance improved slightly, and selling prices decreased modestly, contrasting with rising input costs. Business confidence hit a three-month low amid concerns over economic growth and potential US tariffs.

ISM Manufacturing PMI

In December 2024, the ISM Manufacturing PMI rose to 49.3, exceeding the 48.4 forecast and marking the slowest contraction since March (50.3). New orders hit an 11-month high at 52.5, and production expanded (50.3) for the first time in six months. Prices rose to 52.5, above the 51.7 forecast, reflecting inflation concerns, while firms improved supplier deliveries and prepared for potential Trump tariffs.

Currencies

The dollar index hit 109.4, its highest since October 2022, driven by expectations of stronger U.S. economic growth and elevated interest rates. Trump’s policies are expected to boost growth and inflation, while strong U.S. stock market performance and a resilient labor market, shown by declining jobless claims, further bolstered the dollar.

The euro fell to $1.0220, its lowest since November 2022, due to weak European growth projections, political instability, and fears of Trump-imposed trade tariffs. The ECB’s dovish stance and less aggressive Fed rate cut expectations, fueled by inflationary pressures, added to the euro’s weakness and strengthened the dollar.

The pound dropped to $1.239, an eight-month low, as the UK economy showed zero Q3 growth, challenging PM Keir Starmer’s government. The BoE maintained rates at 4.75% but a split vote favoring cuts raised concerns about early rate reductions in 2025. Fears of Trump tariffs further pressured the pound.

The yen strengthened slightly due to holiday-thinned trading volumes and speculation about BoJ rate hikes after November inflation rose. BoJ December meeting minutes suggested potential rate increases, while Finance Minister Kato warned against excessive yen volatility, heightening market caution.

The offshore yuan weakened, despite PBoC efforts to stabilize it at 7.1879 per dollar after hitting its weakest since 2022. Xi Jinping’s New Year address projected China’s 2024 GDP at 130 trillion yuan, but abundant liquidity, falling bond yields, and a wide US-China interest rate gap kept the yuan under pressure.

Commodities

Gold prices rose 1.3% to $2,654 an ounce this week, extending last year’s 27% surge, the best since 2010. The rise was driven by monetary easing, central bank purchases, and geopolitical tensions. However, Powell’s cautious stance on rate cuts and uncertainties over Trump’s policies and China’s growth weigh on the outlook, though central bank demand may sustain prices. Silver followed gold's positive trend, supported by signs of economic growth despite weak Chinese PMI data.

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