Dollar down on day, but off lows after hotter than expected inflation

NEW YORK, Jan 11 – The dollar was down on the day against the euro and the yen on Thursday but off lows reached before data showed that US consumer price inflation came in above economists’ expectations in December, raising some doubts that the Federal Reserve will cut rates as soon as traders expect.

Bitcoin also surged to a two-year high as several exchange-traded funds (ETFs) tied to the spot price of the cryptocurrency began trading.

The headline US Consumer Price Index (CPI) rose 0.3% last month, for an annual gain of 3.4%, against expectations of 0.2% and 3.2%, respectively.

The cost of shelter, which includes rents, hotel and motel stays as well as school housing, accounted for more than half of the increase in the CPI.

“The details of the report will give dovish Fed officials pause,” said Adam Button, chief currency analyst at ForexLive in Toronto.

Traders are pricing in aggressive expectations for rate cuts this year, with the Fed seen as beginning to cut rates in March.

But “today’s CPI report suggests that the Fed’s initial rate cut may be later than the market is hoping for,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

The dollar index fell to a five-month low in December as traders priced in the likelihood that the US central bank will ease monetary conditions as the US economy weakens and inflation moves back closer to the Fed’s 2% annual target.

“The question everyone is struggling with is what kind of inflation regime we are in – are we still in a 2010s era of low growth, low inflation and we’re still just working through the end of the pandemic adjustment and then we’re back into that?” Button said.

“Obviously that’s what the market’s been betting on for the last two months. And I think it’s ultimately right, but getting there might not be as quick as anyone would like,” he added.

Cleveland Fed President Loretta Mester said on Thursday that the latest CPI figures mean that it would likely be too soon for the central bank to cut its policy rate in March.

Richmond Fed President Thomas Barkin also said that the data did little to clarify the path of inflation.

The dollar index was last down 0.05% on the day at 102.29. It had traded at around 102.20 before the data was released.

The euro gained 0.09% on the day to USD 1.09820. The greenback gained dipped 0.20% to 145.48 yen, after earlier reaching 146.10, the highest since Dec. 11.

Sterling rose 0.17% to USD 1.27630 and got as high as USD 1.27880, the highest since Dec. 28.

In cryptocurrencies, Bitcoin reached USD 49,051, the highest since December 2021, and was last up 1.80% at USD 46,800.

The US Securities and Exchange Commission on Wednesday gave the green light to offer ETFs linked to bitcoin.

(Reporting by Karen Brettell; Additional reporting by Chibuike Oguh in New York; Editing by Alex Richardson and Nick Zieminski)

Gold slides on brewing concerns of US rate cuts still far off

Jan 11 – Gold eased on Thursday to a one-month low as the dollar ticked higher after hotter-than-expected inflation data, while hawkish remarks from Federal Reserve officials fuelled worries that higher interest rates could stay unchanged beyond March.

Spot gold was down 0.1% at USD 2,024.99 per ounce, as of 2:30 p.m. ET (1930 GMT), after rising as much as 0.8% before the data.

US gold futures settled 0.4% lower at USD 2019.20.

The dollar index extended gains after data showed US consumer prices rose more than expected in December, which could delay a much anticipated US rate cut in March.

Cleveland Fed President Loretta Mester said it would likely be too soon for the central bank to cut its policy rate in March, while Richmond Fed chief Tom Barkin said gains on inflation have been too narrowly focused on goods.

“We got a little ahead of ourselves,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago, adding that the hawkish comments call into question the timing and number of rate cuts that the market anticipates this year.

Traders see a 67% probability of a rate cut in March, according to the CME Fedwatch tool, compared with about a 71% chance seen before the report. Higher rates dim the appeal of gold, which pays no interest.

“There has been a lot of hype behind bitcoin, so people tend to rotate out of different asset classes and that could also be behind some degree of the selling,” Streible added.

Attention will turn to the US producer price index (PPI) due on Friday.

“Gold is just grudgingly lower and (the market) hopes PPI will show softer results tomorrow,” said Tai Wong, a New York-based independent metals analyst.

Silver fell 0.7% to USD 22.71 per ounce, its lowest since Nov. 14.

Platinum lost 0.5% to a one-month low of USD 914.85, and palladium fell 0.9% to USD 989.36.

(Reporting by Anushree Mukherjee and Ashitha Shivaprasad in Bengaluru; Editing by Barbara Lewis and Shailesh Kuber)

Dollar up on CPI, but fast Fed cut pricing persists

Jan 11 – The dollar index rose on Thursday following unexpectedly strong US CPI and below-forecast jobless claims, but it pulled back from its highs as the initial rebound in Treasury yields faded amid a risk-off response from stocks.

Two-year Treasury yields swung from new intraday highs to negative territory as the S&P500 turned tail after nearly trading the 2021 record highs. Meanwhile, Fed rate cut pricing actually increased, somewhat at odds with the inflation data.

Comments from Cleveland Fed President Loretta Mester, who told Bloomberg TV that March was “probably” too early for a rate cut, failed to perk up Treasury yields. Mester also said she expects inflation will continue to fall this year and Thursday’s inflation didn’t change her view of where the Fed is on policy.

Comments from Richmond Fed President Tom Barkin also suggested more progress is needed on inflation.

EUR/USD’s initial rally on the US data was roundly rejected exactly at 1.1000, but the subsequent slide to 1.0930 brought buyers by the kijun and 30-day moving average.

At this point in New York afternoon trading EUR/USD is down 0.14%, as normally supportive higher 2-year bund-Treasury yield spreads were offset by demand for the haven dollar.

Germany’s IfW Kiel’s trade policy research center institute on Thursday said its trade indicator showed how Red Sea attacks were weighing more on European Union trade than the US

USD/JPY rose 0.1%, but was off earlier 146.41 highs that pierced key resistance at 146.00/10, the Dec. 13 dovish Fed day high and 50% of the November-December collapse. A close above those hurdles could put in play the 61.8% and 100-DMA at 147.47/39.

Thursday’s 145 low by prior resistance now offers good support.

Sterling was flat, with Thursday’s highs again coming up short of December’s 1.2925 trend high, though initial losses due the US data then retraced. The macro focus now shifts to UK CPI and US retail sales release on Dec. 17.

Aussie fell 0.5% amid risk-off flows and various geopolitical risks.

Friday’s data features China inflation, trade, total social financing, and FDI before the US overall and core PPI forecast of 0.1% and 0.2% month-on-month.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Dollar gains on yen, bitcoin muted after SEC approves ETFs

NEW YORK, Jan 10 – The dollar gained on the yen but dipped against the euro on Wednesday as investors waited on US inflation data for fresh clues on when the Federal Reserve is likely to begin cutting interest rates.

In cryptocurrencies, bitcoin seesawed in a range after news that the Securities and Exchange Commission (SEC) finally approved 11 spot bitcoin exchange-traded funds. It was last down 1.5% at 45,441.

There was some uncertainty about whether the SEC had finalized approval, a day after
a social media message on the SEC’s account claimed the regulator had approved bitcoin exchange traded funds (ETFs), but was later revealed to have been made by an unauthorized person.

After about 40 minutes of confusion about what looked like an official announcement by the SEC, the agency confirmed approved applications, including from BlackRock, Ark Investments and 21Shares, Fidelity, Invesco, and VanEck, among others, according to a notice on its website. Some products are expected to begin trading as early as Thursday.

The dollar index has held in a tight range since Friday when it was volatile, initially jumping on data showing strong jobs gains in December, before dropping on some soft underlying details of the employment report.

The dollar weakened further on Friday after a report by the Institute for Supply Management (ISM) also showed the US services sector slowed considerably in December.

This week’s consolidation “was somewhat predictable in the sense that we have these huge gyrations last Friday on the back of the jobs data and the soft ISM,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

The Consumer Price Index (CPI) due out on Thursday is the next likely driver of dollar direction. It is expected to show that headline inflation rose 0.2% in the month and by 3.2% on an annual basis.

Traders are pricing for the likelihood that the Fed will begin cutting rates in March as inflation eases back closer to the US central bank’s 2% target. But with aggressive rate cut bets already baked into prices, the dollar is holding above five-month lows reached in late December.

The dollar index was last down 0.14% at 102.36. The euro gained 0.36% to USD 1.09700.

The greenback rose 0.84% to 145.68 yen.

Soft economic data this week in Japan may make it less likely that the Bank of Japan will raise rates out of negative territory this month.

“A vocal minority were talking about a rate hike at the end of this month when the Bank of Japan meets, but I think that people feel more comfortable with an April move,” Chandler said.

Data on Wednesday showed that Japanese workers’ real wages kept shrinking for the 20th month in November. Core inflation in Japan’s capital also slowed for the second straight month in December as cost-push price pressures continued to ease, data showed on Tuesday.

In crypto, bitcoin was last up 0.64% at USD 46,438. It briefly hit a 21-month high of USD 47,897 on Tuesday after the post that the SEC blamed on a hack.

Anticipation of a positive SEC decision on ETFs, which is likely to draw billions of dollars in new investments, has boosted bitcoin prices in the past two months.

“The reality is most who have followed the saga have moved on and the green light from the SEC is fully priced,” said Chris Weston, head of research at Pepperstone.

Ethereum also reached USD 2,483, the highest since May 2022, and was last up 5.19% at USD 2,468.

(Reporting By Karen Brettell; additional reporting by Alden Bentley in New York and Joice Alves in London; editing by Jonathan Oatis, Will Dunham, and Marguerita Choy)

Nikkei rally is no flash in Japan

Jan 11 – South Korea delivers its latest interest rate decision on Thursday with the main focus being policymakers’ signal as to when the rate-cutting cycle begins, while Japanese stocks continue to ride the crest of an increasingly bullish wave.

The latest figures for Thai consumer sentiment, Malaysian industrial production, Australian trade and Japan’s foreign exchange reserves are also out on Thursday, ahead of the most significant event for global markets this week – US inflation.

Japanese markets, if not the rest of the region, are poised to open on a strong footing on Thursday after yet another solid performance on Wednesday.

Japan’s Nikkei 225 index surged to a fresh 34-year high above 34,000 points as investors ponder whether the Bank of Japan will ‘normalize’ policy as quickly or dramatically as they were anticipating.

The BOJ had already begun scaling back its ultra-easy policy by effectively lifting the ‘yield curve control’, paving the way to phase it out completely and end seven years of negative interest rate policy later this year.

But recent data suggest inflation is falling back towards the BOJ’s 2% target and inflationary pressures are easing. If so, will the BOJ need to move so quickly, or even at all?

The yen is weakening, making Japanese exports more competitive in the global marketplace and making it cheaper for overseas investors to buy Japanese assets. As a result, Japanese stocks are on a tear and outperforming their peers.

The Nikkei is on course for its best week in three months and is up 3% this year, while the S&P 500 and MSCI World Index are essentially flat, the Euro STOXX 50 is down more than 1% and the MSCI Asia Pacific ex-Japan index is down 4%.

Elsewhere in Asia on Thursday, attention shifts to Seoul and the Bank of Korea’s latest policy decision.

The BOK is widely expected to keep its key policy rate unchanged at 3.50% for an eighth consecutive meeting, but with inflation easing, speculation around when the BOK pivots is bound to intensify, especially with the Fed, ECB and other major central banks widely expected to start cutting rates soon.

Inflation is currently 3.2%, above the central bank’s 2% target but cooling once again, and the won is down around 2% against the dollar so far this year.

BOK Governor Rhee Chang-yong said in a New Year speech the central bank would adopt a “policy mix” to bring down inflation and warned that keeping monetary policy restrictive for too long posed risks.

Swaps markets currently point to a quarter-point rate cut by August and a strong probability of another by the end of the year.

Here are key developments that could provide more direction to markets on Thursday:

– South Korea interest rate decision

– Australia trade (November)

– Malaysia industrial production (November)

(By Jamie McGeever)

US yields narrowly mixed ahead of inflation data

NEW YORK, Jan 10 – US Treasury yields were mixed, with those on the shorter end of the curve slightly lower on Wednesday, as investors priced in a consumer price index (CPI) report that could show declining inflation, moving the Federal Reserve closer to the end of its tightening cycle.

A mixed to decent US 10-year note auction added to Treasury bids and briefly weighed on prices. The US Treasury will next auction USD 21 billion in 30-year bonds on Thursday.

But the main focus is the December CPI data due on Thursday, which will shed further light on when the Fed could start cutting rates. US producer prices will be released on Friday.

US core CPI is forecast to remain unchanged at 0.3% from the month before, while the year-on-year number is seen rising at a lower-than-expected pace of 3.8% from November, a Reuters poll showed. Headline CPI for the month is forecast to climb 0.2%.

“Everyone is waiting for CPI tomorrow (Thursday), which should set up the next wave of Fed commentary,” said Will Compernolle, macro strategist at FHN Financial in New York. “So I see the moves in Treasuries as pre-CPI positioning.”

He said core inflation of 0.3% is on the high side, which he believes could push out expectations for the first rate cut from March to May.

On Wednesday, however, the US rate futures market has priced in a nearly 68% chance of a rate cut in March, according to LSEG’s rate probability app. For 2024, traders are betting on about five rate cuts of 25 basis points (bps) each, putting the year-end fed funds rate at nearly 4%.

“We think that the start of the rate-cutting cycle in March is realistic, a view that we’ve held since October. It all comes down to the inflation data,” said Zachary Griffiths, senior investment grade strategist at CreditSights in Charlotte, North Carolina.

“The recent trend is still supportive of inflation moving lower throughout 2024. It comes down to the idea of the Fed not wanting to incrementally tighten the real policy rate by leaving the nominal policy rate steady as inflation comes down,” he added.

In afternoon trading, the benchmark 10-year yield rose 1.9 bps to 4.034%.

The US 10-year note auction showed a high yield of 4.024%, modestly higher than the market’s forecast of around 4.19%, suggesting investors demanded a slight premium.

Bids totaled USD 94.8 billion for a 2.56 bid-to-cover ratio, a gauge of demand, higher than last month’s 2.53 and the 2.48 average. It ties for the best since February, according to Action Economics.

Indirect bidders, which include foreign central banks, took down 66.1% of supply, higher than the 63.8% last month.

“Ten-year demand seems to be pretty solid,” said CreditSights’ Griffiths. “It doesn’t seem that we’re headed back to 5% in yield any time soon as indicated by the 10-year demand today.”

In other maturities, US 30-year bond yields were up 1.5 bps at 4.198%.

On the shorter end of the curve, the two-year yield was little changed at 4.366%.

A closely tracked US yield curve metric, showing the gap in yields between two- and 10-year notes steepened or narrowed its inversion to minus 33.9 bps on Wednesday. An inverted yield curve typically predicts an incoming recession.

This part of the curve, which has been inverted since July 2022, has been on a steepening trend over the last few months, suggesting investors are pricing the end of the Fed’s rate-hiking cycle.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham and Richard Chang)

Gold subdued as traders gear up for US inflation print

Jan 10 – Gold prices eased on Wednesday ahead of US inflation data that could shape the Federal Reserve’s outlook on interest rate cuts this year, although a softer dollar kept a floor under prices.

Spot gold was down 0.4% at USD 2,021.39 per ounce by 2:25 p.m. ET (1925 GMT). US gold futures settled 0.3% lower at USD 2027.8.

Cooler-than-expected inflation data will give the Fed more reason to cut rates this year, which should move gold prices higher, said Bob Haberkorn, senior market strategist at RJO Futures, adding that he expected “a quiet session with a little bit of back and forth.”

US consumer inflation data is due on Thursday. Economists polled by Reuters see year-on-year inflation at 3.2% in December, but think core inflation likely fell to 3.8%, its lowest since mid-2021.

A New York Federal Reserve report revealed that consumers expect a decline in inflation, while Fed Governor Michelle Bowman on Monday stated that the US central bank’s monetary policy seems “sufficiently restrictive”.

Benchmark 10-year US Treasury yields ticked up, denting bullion’s appeal. Higher interest rates raise the opportunity cost of investing in non-yielding bullion.

“If markets have to dilute bets for a March rate cut, spot gold may see a brief stint back in the sub-USD 2k domain,” said Han Tan, chief market analyst at Exinity Group.

“Still, bullion bulls would have no qualms restoring spot gold back above that psychologically important mark once markets get a firmer grasp on the Fed’s policy pivot.”

The dollar index ticked down about 0.2%, making greenback-priced bullion more affordable for buyers holding other currencies.

In other metals, spot silver fell 0.3% to USD 22.91 per ounce, set for its third consecutive session of declines.

Platinum lost 1.3% to a near one-month low of USD 917.55, while palladium rose 1.8% to USD 995.69, snapping an 11-sesion losing streak.

(Reporting by Anushree Mukherjee and Sherin Elizabeth Varghese in Bengaluru; Editing by Jan Harvey, Emelia Sithole-Matarise, and Shailesh Kuber)

European shares end lower, with miners and travel stocks leading losses

Jan 10 (Reuters) – European shares ended lower on Wednesday, with miners and travel stocks leading the fall, as optimism about early interest rate cuts continued to fade, while investors kept tabs on a key US inflation print due later this week.

The pan-European STOXX 600 ended 0.2% lower, with travel and leisure leading sectoral declines, falling 1.1%. The basic resources index dipped 1.1% as well, its third straight day of losses.

Heavyweight energy shares lost 0.9%, their fourth straight session in the red amid slipping oil prices.

Helping limit losses, the health care index continued its recent strong run, adding 0.3%.

Meanwhile, European Central Bank (ECB) policymakers reaffirmed the bank’s policy stance, saying the euro zone may have been in recession last quarter and prospects in the near term remain weak.

“People were overly optimistic in expecting rate cuts, that’s because the progression of inflation from September to November had been very swift,” said Frédérique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia.

“But the improvement in inflation has slowed somewhat … what’s remarkable is that unemployment has not deteriorated, so that is giving the ECB some scope for patience.”

Investor focus this week will be on the earnings season in the United States and Europe, which will help assess the impact of high interest rates on profit margins, potentially influencing the market direction for the next few weeks.

Also on the radar will be a December US consumer prices reading on Thursday.

On the data front on Wednesday, Norway’s core inflation rate fell below expectations in December, which could help bring forward the central bank’s policy easing plan. Oslo shares ended 0.5% lower.

Separately, surveys from two prominent research institutes said the outlook for Germany’s construction sector was grim for 2024. German stocks ended flat on the day.

Meanwhile, Barclays raised its 2024 target for Europe’s benchmark STOXX 600 to 510 points from 485, citing the prospect of central banks cutting interest rates and a “soft landing” scenario playing out.

Among individual stocks, UK insurers Direct Line and Admiral fell 7.5% and 5.6%, respectively, as traders pointed to an article in the Insurance Post quoting a regulator’s comments on premium finance.

Italy’s Davide Campari lost 6.5% after the spirits group completed a 1.2 billion euro (USD 1.3 billion) private placement of shares and bonds to fund its acquisition of French cognac house Courvoisier.

Swiss chemical company Sika fell 3.8% after missing full-year sales estimates.

(Reporting by Khushi Singh, Shristi Achar A, and Shashwat Chauhan in Bengaluru; Editing by Sonia Cheema and Mark Potter)

Oil prices fall 1% after surprise US storage build

NEW YORK, Jan 10 – Oil prices fell nearly a dollar a barrel on Wednesday after a surprise jump in US crude stockpiles raised worries about demand in the largest oil market.

US West Texas Intermediate crude futures fell 87 cents, or 1.2%, to USD 71.37 a barrel. Global benchmark Brent crude oil futures settled 79 cents, or 1%, to USD 76.80 a barrel.

Prices had gained more than 1% early in the session but reversed course after the US Energy Information Administration reported a surprise build in crude oil stockpiles and larger-than-expected jumps in storage of gasoline and distillates.

“Today’s EIA report highlights investor concerns of slowing demand growth,” said Rob Haworth, senior investment strategist at US Bank Asset Management.

US crude inventories rose by 1.3 million barrels in the week ended Jan. 5 to 432.4 million barrels, compared with analysts’ expectations in a Reuters poll for a 700,000 barrel drop. Gasoline stocks rose by 8 million barrels while distillate stocks jumped by 6.5 million barrels, the EIA reported.

“Part of the explanation is weaker crude and refined product exports resulting in higher US builds, so that is something to watch in my view, how foreign demand evolves,” said UBS analyst Giovanni Staunovo.

Europe’s weak economic outlook added to oil demand concerns. The euro zone may have been in recession last quarter and prospects remain weak, European Central Bank Vice President Luis de Guindos said on Wednesday.

Limiting some losses, investors remained worried about potential oil supply disruptions in the Middle East during the Israel-Hamas war.

The White House said attacks by Yemen-based Houthi militants in the Red Sea were “escalatory” and the US will consult with its partners about next steps if they continue.

“Today’s market reaction indicate traders are actively balancing the potential impact of growing geopolitical risk and slowing economic growth on commodity prices,” said Thomas Wash, market strategist at Missouri-based Confluence Investment Management.

(Reporting by Shariq Khan; Additional reporting by Alex Lawler, Yuka Obayashi, and Muyu Xu; editing by Jason Neely, David Evans, and David Gregorio)

Oil tries to regain footing as Middle East crisis, OPEC supply in focus

Jan 9 – Oil prices steadied on Tuesday after sliding in the previous session, as markets weighed Middle East tensions against demand worries and rising OPEC supply.

Brent crude futures rose 17 cents, or 0.2%, to USD 76.29 a barrel at 0707 GMT, while US West Texas Intermediate crude futures inched up 0.1%, or 5 cents, to USD 70.82 a barrel.

The benchmarks had fallen over 3% and 4% respectively on Monday on sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output.

“Saudi Arabia’s sharp price cuts and OPEC’s increased production have offset supply concerns caused by escalating geopolitical tensions in the Middle East,” said CMC Markets analyst Leon Li.

On the Gaza war, the Israeli military has said its fight against Hamas will rage through 2024, worrying markets that the conflict could grow into a regional crisis that could disrupt Middle Eastern oil supplies.

US Secretary of State Antony Blinken arrived in Tel Aviv late on Monday to brief Israeli officials on his two days of talks with Arab leaders on ending the war.

Holding back price gains however, a Reuters survey on Friday found that OPEC oil output rose in December as increases in Angola, Iraq and Nigeria offset continuing cuts by Saudi Arabia and other members of the wider OPEC+ alliance.

Higher supply had prompted Saudi Arabia to cut the February official selling price of its flagship Arab Light crude to Asia to the lowest level in 27 months.

Oil prices are likely to trade in a range between USD 75 and USD 80 per barrel in the near term, said Suvro Sarkar, energy sector team lead at DBS Bank, “barring an unforeseen flare up in the Middle East situation.”

“On the supply side, there are some bullish factors from the closure of Libya’s largest oilfield, which has affected around 0.3 million barrels per day of oil production,” he added.

Supporting prices, the dollar paused its rally on Tuesday, as traders reaffirmed their bets for a slew of Federal Reserve rate cuts this year. A weaker dollar boosts oil prices as crude becomes cheaper for holders of other currencies.

Federal Reserve Governor Michelle Bowman on Monday said she now sees US monetary policy as “sufficiently restrictive” and signalled her willingness to support eventual interest-rate cuts as inflation eases.

The market is awaiting US inventory data from the American Petroleum Institute industry group later in the day.

(Reporting by Arathy Somasekhar in Houston and Emily Chow in Singapore; Editing by Sonali Paul)

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