Dollar Climbs as Fed Rate Cut Expectations Recede

Economic Indicators - The markets are pricing in a 5% chance of a -25 basis point rate cut at the FOMC's next meeting on January 27-28 [1] - The University of Michigan's January 1-year inflation expectations remained unchanged at 4.2%, while the 5-10 year expectations increased to 3.4% from 3.2% in December [1] - The University of Michigan's January consumer sentiment index rose by 1.1 to 54.0, exceeding expectations of 53.5 [2] - US October housing starts fell by 4.6% month-over-month to a 5.5-year low of 1.246 million, below expectations of 1.330 million [2] - US December nonfarm payrolls increased by 50,000, lower than the expected 70,000, while the unemployment rate fell by 0.1 to 4.4% [2] Currency Market - The dollar index rallied to a 1-month high, finishing up by 0.20%, supported by mixed US payroll data and a rise in consumer sentiment [3] - The dollar is under pressure due to the Fed's liquidity boost, with $40 billion monthly purchases of T-bills starting in mid-December [5] - The euro (EUR/USD) fell to a 1-month low, down by 0.21%, influenced by dollar strength but supported by better-than-expected Eurozone retail sales and German industrial production [6][7] Precious Metals - Gold and silver prices increased sharply after President Trump directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds, seen as a form of quantitative easing [13] - Precious metals are supported by safe-haven demand amid geopolitical risks and expectations of easier monetary policy from the Fed [14] - Strong central bank demand for gold is evident, with China's PBOC reserves increasing by 30,000 ounces to 74.15 million troy ounces in December [16] - Fund demand for precious metals remains robust, with long holdings in gold and silver ETFs reaching multi-year highs [17]