The dollar index dropped 0.8% last week, breaking a six-week winning streak. Despite strong US data, hopes for Fed rate cuts rose due to weaker inflation, PPI, and retail sales. The euro gained as European inflation aligned with forecasts, Germany’s data exceeded expectations, and ECB hawkishness supported the currency.
Gold ended the week near a one-month high, gaining 1%, driven by soft US data and expectations for Fed rate cuts. Inflation concerns tied to Trump’s policies also boosted gold. Silver rose for the third week, with its outlook influenced by Chinese developments.
U.S. 10-year yields eased to 4.60% after recent highs, while Japanese yields hit a 14-year peak of 1.26%. Chinese 10-year yields attempted a recovery from historic lows of 1.65%.
In December, US factory gate prices rose 0.2% MoM, slowing from November’s 0.4% increase and below the forecast of 0.3%. Goods prices surged 0.6%, driven by a 9.7% gasoline price jump, while services remained flat. Annual PPI rose to 3.3%, the highest since February 2023 but below expectations of 3.4%. Core PPI held steady at 0.2%, with the annual core rate at 3.5%, under the forecasted 3.8%.
US annual inflation rose to 2.9% in December from 2.7%, matching forecasts. Energy costs fell less sharply (-0.5%), while food and transportation inflation accelerated. Monthly CPI rose 0.4%, the highest since March, led by a 2.6% energy index rise.
UK annual inflation fell to 2.5% in December, below market expectations but matching the BoE's forecast. Core inflation dropped to 3.2%, with prices easing in restaurants, hotels, and services, while food costs remained steady.
UK GDP stagnated in Q3 2024, with growth revised to 0%. Services showed no growth, while production fell 0.4%. Business investment rose 1.9%, but weaker government consumption and exports offset gains.
Germany’s inflation rate rose to 2.6% in December, driven by higher service and food prices. Monthly CPI increased by 0.5%, recovering from November’s decline.
US retail sales grew 0.4% MoM in December, the smallest rise in four months, as gains in miscellaneous and furniture stores offset declines in building materials and food services.
US jobless claims rose by 14,000 to 217,000, surpassing forecasts of 210,000. Continuing claims dropped to 1.86 million, reflecting a relatively strong labor market.
China’s economy grew 5.4% YoY in Q4, exceeding forecasts of 5.0%. December saw strong industrial output and exports, though unemployment rose to a three-month high.
Eurozone inflation rose to 2.4% in December, with energy prices turning positive for the first time since July. Core inflation remained stable at 2.7%.
The dollar index fell 0.8% this week, breaking a six-week winning streak, as weaker US PPI and retail sales data increased expectations for rate cuts. The euro gained support from ECB hawkishness, while the pound weakened on disappointing UK data. The yen saw its strongest week since November on speculation of a BOJ rate hike. The loonie fell due to weak domestic data and diverging monetary policies.
Gold hit a one-month high, supported by weak US inflation data and Fed rate cut expectations. Silver also gained for the third week, driven by similar factors, though China’s solar sector challenges may limit demand.
US indices posted strong weekly gains, with the Dow leading at 3.84%. Tesla surged nearly 9%, while Apple dropped 4%, continuing its downward trend.
Oil inventories are nearing depletion, increasing supply risks and supporting prices. Aramco estimates less than 6 billion barrels remain after over 1 billion barrels were drawn this year, while the IEA is preparing a 100-million-barrel release. The US 10-year Treasury yield stabilized near 5.31% on Wednesday, close to 24-year peaks, as markets awaited the Fed's minutes.
The dollar index steadied around 102 on Tuesday, near its highest since April 2025, as the euro weakened on French fiscal and political concerns and Spain's upcoming snap election, yet stabilized near 1.1220 after touching its lowest level since May 2025.
Detail
Weak US Jobs Ease Fed Hike Bets (5 – 9 October)Weak US labor market data shifted the monetary policy outlook after September nonfarm payrolls rose by only 29,000, well below the 90,000 forecast, while prior months were revised lower. Unemployment rose to 4.2%, and wage growth slowed to 3.0%, cutting the probability of an October Fed hike to around 20%. The Dollar Index fell below 102 after the report, but remained on course for a third consecutive weekly gain.
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