The dollar index (DXY00) today is down by -0.24%. The dollar is moving lower today after the Dec Empire manufacturing survey of general business conditions unexpectedly contracted, a dovish factor for Fed policy. Also, the strength in stocks today has reduced liquidity demand for the dollar. The dollar dropped to its low after Fed Governor Stephen Miran said the Fed’s policy stance is unnecessarily restrictive on the economy.
The dollar is also under pressure as the Fed boosts liquidity in the financial system and began purchasing $40 billion a month in T-bills effective last Friday. Finally, 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.
The US Dec Empire manufacturing survey of general business conditions unexpectedly contracted -22.6 points to -3.9, weaker than expectations of 10.0.
The US Dec NAHB housing market index rose +1 to an 8-month high of 39, right on expectations.
Fed Governor Stephen Miran said the Fed’s policy stance is unnecessarily restrictive for the economy, citing a benign inflation outlook and labor-market warning signs.
The markets are discounting a 27% chance that the FOMC will cut the fed funds target range by 25 bp at the January 27-28 FOMC meeting.
EUR/USD (^EURUSD) today is up by +0.23% and climbed to a 2.5-month high. The euro is rising today amid weakness in the dollar. Also, today’s economic news showed that Eurozone Oct industrial production rose by the most in 5 months, which is bullish for the euro. In addition, the euro has support due to divergent central bank policies, with the Fed expected to continue cutting interest rates in 2026 while the ECB is seen to have finished its rate-cutting campaign.
Eurozone Oct industrial production rose +0.8% m/m, right on expectations and the biggest increase in 5 months.
Swaps are pricing in a 0% chance of a -25 bp rate cut by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) today is down by -0.60%. The yen climbed to a 1-week high against the dollar today. Stronger-than-expected Japanese economic news today is boosting the yen after the Q4 Tankan large manufacturing outlook survey and the Oct tertiary industry index rose more than expected. Also, expectations that the BOJ will raise interest rates by 25 bp at Friday’s policy meeting are supportive of the yen. In addition, lower T-note yields today are bullish for the yen.
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