The dollar index (DXY00) Friday fell by -0.09%.  Strength in the yen Friday undercut the dollar after Japanese Finance Minister Kato warned about excessive moves in the forex market after the yen tumbled to a 5-month low against the dollar on Thursday.  The dollar fell to its low on Friday after the US Nov trade deficit was wider than expected, a negative factor for Q4 GDP.  However, the dollar recovered from its worst levels after Friday’s stock selloff, which boosted liquidity demand for the dollar.

The US Nov trade deficit widened to -$102.9 billion from -$98.3 billion in Oct, a larger deficit than expectations of -$101.2 billion.

US Nov wholesale inventories unexpectedly fell -0.2% m/m versus expectations of a +0.1% m/m increase. Nov retail inventories rose +0.3% m/m, right on expectations.

The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.

EUR/USD (^EURUSD) Friday rose by +0.03%.  The euro Friday posted modest gains due to weakness in the dollar. Also, Friday’s jump in the 10-year German bund yield to a 1-1/4 month high has strengthened the euro’s interest rate differentials.  In addition, Friday’s rally in European nat-gas prices to a 3-week high has pushed inflation expectations higher, a hawkish factor for ECB policy and a supportive factor for the euro.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and at 12% for a -50 bp rate cut at that meeting.

USD/JPY (^USDJPY) Friday fell by -0.04%.  The yen strengthened Friday as it rebounded from Thursday’s 5-month low against the dollar.  Short covering emerged in the yen Friday on better-than-expected Japanese economic news on Nov industrial production and retail sales.  Also, Friday’s report on Dec Tokyo CPI showed prices rising at the fastest pace in 14 months, which pushed the 10-year JGB bond yield to a 13-year high of 1.125%, a supportive factor for the yen. 

The yen added to its gains Friday after Japanese Finance Minister Kato said the government would take “appropriate” steps against excessive foreign exchange market movements, bolstering speculation that the BOJ could be close to intervening in currency markets to support the yen.  However, the yen gave up most of its advance as T-note yields rose.

Japan Nov industrial production fell -2.3% m/m, a smaller decline than expectations of -3.5% m/m.

Japan Nov retail sales rose +1.8% m/m, stronger than expectations of +0.5% m/m and the largest increase in almost 4-1/2 years.

Japan Dec Tokyo CPI rose +3.0% y/y, stronger than expectations of +2.9% y/y and the biggest increase in 14 months.  Dec Tokyo CPI ex-fresh food and energy rose +1.8% y/y, weaker than expectations of +1.9% y/y.

February gold (GCG25) Friday closed down -22.00 (-0.83%), and March silver (SIH25) closed down -0.421 (-1.39%).  Precious metals on Friday settled moderately lower.  Higher global bond yields Friday weighed on precious metal prices.  Gold prices were also under pressure from Friday’s stronger-than-expected Japanese economic news on Nov retail sales, Nov industrial production, and Dec Tokyo CPI, which are hawkish for BOJ policy and may prompt the BOJ to raise interest rates at next month’s policy meeting. 

Friday’s weaker dollar was bullish for metals prices.  Also, the stock weakness on Friday boosted some safe-haven demand for precious metals. Precious metals have continued safe-haven support from geopolitical risks after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict. Silver prices have support on hopes of increased industrial metals demand in China on reports that China will launch additional stimulus measures in 2025.