The dollar index (DXY) edged up 0.08% on December 19, 2024, holding just below Wednesday’s two-year high, as a batch of stronger-than-expected US economic reports reinforced the Federal Reserve’s signal for a slower pace of interest rate cuts next year. The greenback’s resilience came even as equities recovered, which typically trims safe-haven demand for the US currency.
Data released Thursday showed US weekly initial unemployment claims fell by 22,000 to 220,000, well below the 230,000 forecast, while the third-quarter GDP was revised upward to 3.1% annualized from 2.8%. The Philadelphia Fed’s business outlook survey, however, dropped to a 20-month low of -16.4, and the November leading indicators index rose 0.3%, its largest gain in nearly three years. Existing home sales also climbed 4.8% month-over-month to a seasonally adjusted annual rate of 4.15 million, an eight-month high.
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The mixed but generally solid data reinforced the Federal Open Market Committee’s (FOMC) updated projections from Wednesday, which now point to only 50 basis points of rate cuts in 2025 — down from the 100 basis points the central bank had projected in September. Markets are currently pricing in just a 9% chance of a quarter-point cut at the January 28–29 FOMC meeting, according to CME FedWatch data cited by Barchart.
Euro Gains on German Confidence, ECB Cut Expectations
The euro rose 0.41% against the dollar, supported by a stronger-than-expected German GfK consumer confidence reading for January, which improved to -21.3 from -23.1, beating the -22.5 forecast. Higher European government bond yields also widened the euro’s interest rate differential in its favor.
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Eurozone new car registrations fell 1.9% year-over-year in November to 869,816 units, a modest drag on the single currency. Meanwhile, swaps markets are fully pricing in a 25-basis-point rate cut by the European Central Bank at its January 30 meeting, with a 12% probability of a larger 50-basis-point move.
Yen Tumbles After BOJ Holds Rates Steady
The Japanese yen weakened sharply, with USD/JPY jumping 1.68% to a 4-3/4 month low. The Bank of Japan kept its overnight call rate unchanged at 0.25%, as widely expected, but Governor Kazuo Ueda’s post-meeting comments signaled the central bank is in no rush to tighten policy further.
Ueda said the overall picture on wages should become clearer by March or April and that it may take time to assess the full impact of the incoming Trump administration’s policies. His remarks dampened expectations for a near-term rate hike, sending the yen lower. Higher US Treasury yields also added pressure on the Japanese currency.
Gold and Silver Slide as Yields, Dollar Weigh
Precious metals fell sharply on Thursday, with February gold futures dropping 1.63% to a one-month low and March silver futures tumbling 4.54% to a 3-1/4 month low. The selloff was a carryover from Wednesday’s dollar surge to a two-year high after the Fed’s hawkish cut signal, combined with rising global bond yields that reduced the appeal of non-yielding assets.
Gold and silver still retain some safe-haven support from geopolitical tensions, including the recent collapse of the Syrian government and the ongoing Ukraine-Russia conflict. Silver also found some support from the upward revision to US Q3 GDP, which points to firmer industrial demand.
For traders, the key takeaway is that the dollar’s strength is being driven by a resilient US economy and a Fed that appears less eager to cut rates than previously signaled. The contrast with the BOJ’s dovish stance and the ECB’s expected easing is likely to keep currency markets volatile into the new year.
This article is for informational purposes only and does not constitute financial advice. Market conditions are volatile and uncertain; readers should conduct their own research before making any investment decisions.
