The dollar is evenly mixed vs. the G10 in early trading today. Gains include 0.25% vs. NOK, 0.15% vs. AUD, 0.10% vs. EUR & DKK, and 0.07% vs. CAD. Dollar declines: -0.27% vs. JPY, -0.26% vs. SEK, -0.15% vs. GBP, and -0.01% vs. CHF. The U.S. Dollar Index is -0.03% at 103.24, just below the 100-day moving average at 103.59.

U.S. Treasury yields are lower for the second day but remain in a short-term uptrend started 28 Dec.

Daily ranges in the dollar and Treasuries will likely narrow as the week progresses and traders shift focus to next week’s FOMC 2-day policy meeting. The FOMC’s rate policy statement will be announced on Wednesday, Jan 31^st, at 2pm ET. Fed Funds Futures currently imply a 50/50 chance of a quarter point cut, but consensus is traders timing of expected cuts is premature, and the broader market expects no change.

Equities Friday rally has continued into today with all major U.S equity indexes pointing to a higher open. The FOMC’s media blackout began on Saturday so markets are free to trade without concern of unexpected central bank headlines.

The Bank of Canada will announce its first rate decision of the year on Wednesday. Expectation is for no change (10% probability of a quarter-point cut) to the current 5% target rate. Overnight Index Swaps are pricing in nearly a total 1% of cuts by the BoC’s final rate policy meeting in December.

This week’s economic calendar includes Mortgage Applications on Wednesday, Annualized GDP, Durable Goods Orders, Weekly Jobless Claims and New Home Sales on Thursday.

U.S. Weekly Jobless Claims for the week ending 13Jan24 were 187k, below the 205k estimate, and the lowest claims since 23Sep22 (16 months). Today’s strong jobs data, combined with yesterday’s higher-than-expected December Retail Sales, and last week’s higher-than-forecast CPI (consumer inflation), taken together depict an expanding U.S. economy undeterred by high borrowing costs.

The recent string of positive economic data has caused traders to push back their timelines for expected Fed rate cuts, lifting the U.S. dollar and treasury yields in the process.

The dollar index is higher for the 3^rd consecutive day, 0.10% at 103.55, and confirming the breakout from its weekly downtrend. Today’s dollar gains vs. the G10: 0.47% vs. CHF, 0.29% vs. NOK, 0.24% vs. NZD, 0.21% vs. EUR, & 0.11% vs. GBP.

U.S. Treasury yields are higher in the long-dated tenors today, and the 10-year yield is 14 basis-points since last week’s CPI data. Fed Funds Futures are now pricing in only a 56% probability of a rate cut at the FOMC’s March meeting, down from a 78% probability as recently as Jan 12^th. Probabilities of cuts at the May, June, July, and September meetings have seen similar declines.

Equities are lower in lock step with the higher trend in yields, the continuation of high borrowing rates prolonging the headwind for businesses and driving down revenues.

Tomorrow’s economic calendar includes U.S. Consumer Sentiment, U.S. Existing Home Sales, and Canadian Retail Sales.

The dollar gapped higher overnight, gaining at the start of the APAC trading session and added momentum at the European open. The dollar index is 0.69% at 103.09, finally above 102.70 resistance (in place December 14^th). Today’s move higher has broken the weekly short-term downtrend that started in early November with the surprise drop in Nonfarm payrolls. Minor resistance is at 103.50 and more significant resistance should surface near 104.00.

The dollar is higher against all major currencies, the biggest gains vs. emerging market ZAR ( 1.10%) and the Mexican peso ( 1.06%). The dollar is trading near 1-month highs vs. the G10: 0.84% vs. AUD, 0.81% vs. SEK, 0.61% vs. EUR, NOK, & DKK, 0.58% vs. GBP, and 0.54% vs. JPY.

U.S. Treasury yields are higher, the widest gains in the 20-30-year tenors, 0.082% in a slight steepening to the yield curve.

The higher dollar is being attributed to a more hawkish tone from global central bankers who are trying to push back on rate cut expectations, and signaling the battle against inflation is not over.

But there is a segment of the market unconvinced by central banker’s recent hawkish shift, seen in the Fed Funds futures market which continues to imply >100% probabilities of quarter-point cuts at the FOMC’s May, June, July, and September rate policy meetings and a total of 1.75% in cuts by January 2025.

Canadian CPI data released today matched estimates, M/M -0.3% and Y/Y 3.4%.

Tomorrow's Retail Sales data is the next focus on the economic calendar.

U.S. Producer Prices increased 1.0% Y/Y during December, below the 1.3% estimate. And M/M PPI was -0.1%, 0.1% estimate. December Core PPI (excludes food and energy) was 1.8%, below the 2.0% estimate and the lowest reading since January 2021. All six measures of producer inflation either matched or were below market estimates and 2/6 were below November’s results. Today’s data is welcome news to the Fed as it neutralizes yesterday’s higher-than-forecast inflation at the consumer level (CPI) and keeps the overall inflation picture trending lower.

U.S. Treasury yields are lower in the near tenors and higher in the far tenors (>10-years), flattening the inverted curve. With inflation’s decline back on track (at least with today’s data), the implied probabilities of quarter point rate cuts at the FOMC’s mid-year meetings have spiked: 112% for May, 118% for June, and 101% in July.

The dollar is lower against the G10 pairs except for a 0.08% gain vs. the EUR. Today’s dollar losses neatly reverse yesterday’s gains. The dollar index is about flat, 0.05%, and midway between near-term support at 102.00 and resistance at 102.50.

The majority of global equity indexes are in the green today and futures are signaling higher opens for the S&P 500 and Nasdaq.

Gold has spiked, 1.61% today at $2,061.20/oz after trading as low as $2,013.13/oz. yesterday.

Next week’s economic calendar includes Retail Sales for December, Industrial Production, and preliminary Consumer Sentiment.

Today’s CPI data shows that inflation at the consumer level increased during December. CPI was 0.3% MoM and 3.4% YoY. And Core CPI (basket of consumer goods excluding food and energy) was 0.3% MoM and 3.9% YoY. December CPI results either matched or exceeded estimates, unwelcome news for the Fed and its effort to bring inflation down to a 2% long-term average.

The dollar index is higher following the CPI data, 0.29% at 102.66 after trading as low as 102.15 overnight. Stubborn inflation implies the Fed will need to keep rates at current levels for longer which underpins dollar strength and U.S. Treasury yields.

Dollar gains are against all G10 pairs and most other majors except for emerging market ZAR, TWD, BRL, and KRW. The dollar’s primary gains: 0.44% vs. CHF, 0.43% vs. AUD, 0.29% vs. JPY, 0.26% vs. EUR, 0.25% vs. MXN, 0.20% vs. GBP, and 0.16% vs. CAD.

U.S. Treasury yields are higher in all tenors but only fractionally, the biggest gain 0.019% in the 30-year tenor. Implied probabilities for a 25bps rate cut at the FOMC’s meetings this year are 63% for March, 89% for May, 96% for June, 83% for July, and 90% for September. The implied total of rate cuts this year is 1.40%

Bitcoin is 4.20% following yesterday’s SEC approval to trade Bitcoin ETF’s. Oil is 2.37% at $73.05/barrel.

The dollar index (DXY) continues to trade within its recent narrow ranges, stuck in a 6-day holding pattern of support at 102.25 and resistance at 102.60. Today the DXY is -0.11% at 102.47, signaling a mixed dollar vs. the G10 currencies: 0.56% vs. JPY, 0.18% vs. NZD, -0.34% vs. NOK, -0.16% vs. AUD, -0.12% vs. GBP, and -0.10% vs. EUR, and several sub-0.10% moves.

The Japanese yen has seen the biggest net move today, registering declines against all the major currencies, notably -0.86% vs. NOK, -0.71% vs. AUD, and -0.64% vs. GBP, SEK, CAD, & EUR.

USDCAD is -0.10% today but remains in a short-term uptrend started Dec 27^th. Support is seen at 1.3175 and resistance at 1.3400. USDMXN is -0.15% during January, uncharacteristic low volatility.

Traders are sidelined, waiting for tomorrow’s CPI and Friday’s PPI, key inflation readings for December.

U.S. Treasury yields are slightly lower in all tenors, down an average -0.03% (except in the 6-month which is 0.01%), insignificant moves ahead of the inflation data releases.

Gold is -0.07% but still trading above long-term $2,000/oz. support at $2,027.70. Oil is 1.15% today and 1.81% during January.

Initial Jobless Claims for the week ending Dec 30^th were 202k, below the 216k estimate and the lowest weekly reading since October 2023. And the ADP Employment Change gauge for December was 164k, above the 125k estimate. The combination of lower jobless claims and higher than expected new jobs added are complimentary data points and confirm the continued strength of the U.S. labor market.

Today’s labor data sets the stage for tomorrow’s Change in Nonfarm Payrolls for December, the key employment reading for the U.S. (estimated 172k). Today’s data is already lifting U.S. Treasury yields as traders scale back bets for an aggressive series of Fed rate cuts this year. Yields gains are concentrated in the 5 to 15-year tenors.

Higher yields are translating into a stronger dollar today, lifting the U.S. Dollar Index to 102.481 and its 5^th consecutive daily gain. Today’s primary gains are 0.96% vs. JPY, 0.34% vs. AUD, 0.29% vs. CHF, and 0.25% vs. MXN. The dollar has retreated slightly against the EUR (-0.18%), and GBP (-0.02%), and is unchanged vs. CAD.

The major global equity index futures are evenly mixed between minor gains and losses.

Oil prices are holding yesterday’s gains ( 3.30%) following attacks in Lebanon and Iran against Hamas and Revolutionary Guard leadership, potentially widening the conflict between Israel and Hamas and disrupting global oil supplies.

The dollar is higher today, building on momentum from gains late last week. The U.S. Dollar Index is 1.52% since last Thursday’s low at 100.617 and 0.81% today. The dollar is higher vs. the G10 and full list of majors, notable gains: 0.94% vs. CHF, 0.82% vs. EUR & GBP, 0.69% vs. JPY, 0.48% vs. CAD, 0.44% vs. AUD, and 0.40% vs. MXN. Reports of Iran sending a warship to the Red Sea has shifted markets to a ‘risk-off’ stance, driving flows to the greenback.

U.S. Treasury yields are higher today in all tenors, led by the 3-year with a gain of 0.09% at 4.1009% (closed Friday at 4.0102%).

The majority of global equity index futures are negative today including U.S. futures which are signaling a sharp drop at the open: Nasdaq 100 mini -0.94%, and S&P 500 mini -0.73%.

Oil prices are 1.56% at $72.80/barrel, down from $73.64/barrel earlier in today’s trading session.

Gold closed December at $2,062.59/oz., an all-time monthly and yearly record. Silver is rangebound between $18oz and $26oz long-term and $22oz-$25oz short-term.

This week’s primary economic reports are set for release on Friday, led by Nonfarm Payrolls and Unemployment for December. Friday we will also see Factory Orders and Durable Goods Orders. The FOMC’s Meeting Minutes (for the December 13^th rate policy decision) will be released on Wednesday.

Canada will also release its Net Change in Employment and Unemployment Rate figures on Friday.

The U.S. Dollar Index reached a fresh 5-month low overnight, touching 100.617, its lowest point since July. The dollar is closing in on its 3^rd consecutive weekly decline and is -5.31% since October’s close at 106.663. Dollar gains are 0.32% vs. GBP, 0.26% vs. AUD, and sub-0.10% gains vs. NZD and EUR.

The JPY has gained the most among G10 currencies in today’s trading, advancing 0.61% vs. the USD, 0.69% vs. EUR, and 0.90% vs. GBP. Comments from the Bank of Japan fueled speculation of a rate hike in by spring of next year.

U.S. Treasury yields are slightly higher in trading today but remain within recent ranges. The 10-year yield is 0.031% at 3.82%. Traders continue to price in a total 1.56% in Fed rate cuts next year (to 3.76% from the current 5.32%)

Markets have been generally quiet this week but low liquidity in thin holiday markets could create volatility in the ramp up to tomorrow’s trading year-end.

Gold is higher for the 3^rd straight week, currently at $2,077/oz., and 2.07% during December. Gold’s highest yearly close was at $1,896/oz in 2020. This year gold has marked its highest point on record at $2,135.40/oz. and is closing in on a new yearly high close.

U.S. Weekly Jobless Claims for the week ending December 23^rd were 218k, higher than the 210k estimate. Retail Inventories were reported -0.1% vs. a 0.2% estimate.