U.S. Dollar Gains Momentum on Strong Economic Data and Fed Outlook

The dollar index rose 0.08% today, reclaiming modest gains after earlier declines and trading just below Wednesday’s two‑year peak. Positive U.S. economic data and the Federal Reserve’s signal that only a 50‑basis‑point rate cut is likely next year—down from a September forecast of 100 bps—provided further support. Meanwhile, a rally in equities dampened some of the dollar’s liquidity demand.

Initial weekly unemployment claims dropped by 22,000 to 220,000, exceeding expectations of 230,000 and indicating a tighter labor market.

Third‑quarter GDP was unexpectedly revised up to an annualized 3.1% quarter‑over‑quarter, surpassing the prior estimate of 2.8%.

The December Philadelphia Fed business outlook index fell sharply by 10.9 points to a 20‑month low of -16.4, contrary to forecasts that anticipated an rise to 2.8.

November’s leading indicators climbed 0.3% month‑over‑month, defying a projected 0.1% decline and marking the largest gain in two‑and‑three‑quarter years.

Existing home sales increased 4.8% month‑over‑month in November, reaching an eight‑month high of 4.15 million units, and outpacing the expected 3.2% rise to 4.09 million.

Markets are pricing a 9% probability of a 25‑basis‑point rate cut at the FOMC meeting scheduled for January 28‑29.

The EUR/USD pair rose 0.41% today, as the euro gained ground following stronger‑than‑expected German GfK consumer confidence data for January. Higher European government bond yields also bolstered the euro’s interest‑rate differential.

Eurozone new car registrations slipped 1.9% in November to 869,816 units.

Germany’s GfK consumer confidence index improved by 1.8 points to -21.3 in January, outperforming the forecast of -22.5.

Swaps markets indicate a 100% probability of a 25‑basis‑point ECB rate cut at its upcoming meeting on January 30, with a 12% chance of a larger 50‑basis‑point reduction.

USD/JPY rose 1.68% today, pushing the yen to its weakest level against the dollar in four‑and‑three‑quarter months. The Bank of Japan held its policy rate steady and Governor Kazuo Ueda signaled that rate hikes are not imminent. Meanwhile, higher U.S. Treasury yields added pressure on the yen.

The Bank of Japan left its overnight call rate unchanged at 0.25%, as anticipated.

BOJ Governor Ueda indicated a cautious stance on rate hikes, noting that wage trends should become clearer by March or April and that the full impact of the Trump administration’s policies will need time to assess.

February gold fell $43.10, or 1.63%, to a one‑month low, while March silver dropped $1.395, or 4.54%, to a three‑and‑three‑quarter month low. Precious metals declined sharply, weighed down by the dollar’s surge to a two‑year high on Wednesday after the FOMC signaled fewer rate cuts, rising global bond yields, and a rebound in equities that reduced safe‑haven demand. However, geopolitical risks—including the collapse of the Syrian government and heightened hostilities in Ukraine‑Russia—continue to provide underlying support for safe assets, and silver benefited modestly from stronger U.S. third‑quarter GDP, which lifted industrial‑metal demand expectations.

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