Dollar Hits 2022 Highs as Growth Outlook Lifts Markets (06 - 10 Jan)

The dollar index rose to 109.4, its highest since October 2022, driven by strong U.S. growth expectations, elevated rates, and Trump’s pro-growth policies. The euro fell to $1.0220, weakened by Europe’s weak outlook and a dovish ECB, while the pound dropped on UK economic stagnation and BoE rate cut signals.

Gold ended the week positively, supported by strong Chinese manufacturing PMI data and weaker U.S. PMI figures, which increased demand for safe-haven assets. Silver also gained, following gold’s trend, as signs of growth in the Chinese economy offset weaker PMI data.

U.S. Treasury yields declined last week, with 10-year and 2-year yields pulling back. China’s 10-year bond yields also fell by approximately 7%, reflecting easing in global bond markets.

Initial Jobless Claims

For the week ending December 28, initial jobless claims fell by 9,000 to 211,000, the lowest since a seven-month low of 213,000. The four-week moving average dropped by 3,500 to 223,250.

Chicago PMI

The Chicago Business Barometer fell 3.3 points to 36.9 in December, marking its lowest since May 2024. Declines in New Orders and Production offset gains in Employment, Supplier Deliveries, and Order Backlogs. Prices Paid fell to the lowest since July 2024, while Inventories hit the lowest since October 2009.

SP Global Manufacturing PMI

The S&P Global U.S. Manufacturing PMI declined to 49.4 in December, marking the sixth consecutive contraction in factory activity. Output fell fastest in 18 months due to reduced demand and weaker export orders. Firms cut purchasing but increased hiring, while input cost pressures surged, leading to higher output prices.

China Manufacturing PMI

China's Caixin Manufacturing PMI dropped to 50.5 in December from 51.5, reflecting slower growth in output and new orders. Foreign orders declined, employment fell, and business confidence reached a three-month low. Selling prices dipped while input costs rose modestly.

ISM Manufacturing PMI

The ISM Manufacturing PMI rose to 49.3 in December, indicating the slowest contraction since March. New Orders reached an 11-month high, while Production expanded for the first time in six months. Prices rose, reflecting persistent inflation concerns amid improved supplier deliveries.

Currencies

The dollar index hit 109.4, its highest since October 2022, driven by robust U.S. economic growth and expectations for elevated rates under Trump’s policies. The euro fell to $1.0220 amid weak European growth and a dovish ECB, while the pound dropped to $1.239 due to the BoE’s dovish stance and stagnant UK growth. The yen gained slightly, with BoJ minutes hinting at possible rate hikes, though concerns over yen weakness persist. The offshore yuan weakened despite PBoC support, pressured by abundant liquidity and a strong dollar.

Commodities

Gold rose 1.3% to $2,654 per ounce, driven by monetary easing, geopolitical tensions, and record central bank purchases. The outlook remains mixed as Fed caution on rate cuts weighs on demand, though central bank buying may sustain prices. Silver followed gold's trend, supported by signs of economic growth despite weaker Chinese PMI data.

Equities

U.S. indices posted losses this week. The S&P 500 and Dow Jones fell 1.5%, while the Nasdaq dropped 2.5%, driven by a strong dollar and low trading volumes. Tech giants like Microsoft, Netflix, and Apple declined by 5%, while Starbucks and Uber gained 3% and 2%, respectively.