Dollar Saved from Worst Weekly Loss in 10 Months by Aggressive Safe-Haven Buying

Traders said the rebound in the dollar was fueled by aggressive safe-haven buying amid stock market volatility, weaker Treasury yields and a possible U.S. government shutdown.
James Hyerczyk
U.S. Dollar
U.S. Dollar

U.S. Treasury markets showed little reaction to the plunge in the U.S. equity markets on Friday, suggesting the selling pressure was orderly and not representative of a panic. The price range was relatively tight with yields settling near eight-month lows as President Donald Trump threatened a ‘very long” government shutdown and some traders shedding risky assets ahead of the long holiday weekend.

T-notes and T-bonds have been on a tear since the Federal Reserve on Wednesday revealed its updated monetary policy strategy and economic projections which struck a more dovish tone than in the previous meetings, but not dovish enough for the markets’ liking.

Investors had expected the Fed to indicate that further rate increases would be more data dependent due to plunging stock markets, slowing international growth and a potential slowdown in the U.S. economy, however, the central bank raised its benchmark interest rate by 25-basis points while pledging to keep withdrawing support from an economy it views as strong.

Yields did rise a little on an intraday basis on Friday after New York President John Williams said that the U.S. central bank is open to reassessing its views and listening to market signals that the U.S. economy could fall short of expectations.

At the end of the session, the benchmark 10-year Treasury note yield was little changed at 2.792 percent. The yield hit an 8-month low of 2.748 percent on Thursday, well-off a seven-year high of 3.261 percent reached on October 9.

U.S. 30-year Treasury bonds rose on the week, benefitting from year-end demand from fund managers rebalancing portfolios.

U.S. Dollar

The U.S. Dollar posted a volatile range against a basket of currencies on Friday, first dipping to a its lowest level since November 22 then rebounding to close only slightly lower while recapturing nearly half of the week’s losses. The strong recovery helped the dollar avoid its biggest weekly loss in 10 months.

Traders said the rebound in the dollar was fueled by aggressive safe-haven buying amid stock market volatility, weaker Treasury yields and a possible U.S. government shutdown.

U.S. Economic Data

U.S. economic data was mixed on Friday and had very little effect on the financial markets. Core Durable Goods Orders, a closely watched proxy for business spending plans, dropped 0.3%, missing the forecast for a 0.3% increase. Durable Goods Orders came in up 0.8%, lower than the 1.6% estimate.

The U.S. economy also slowed slightly more than previously estimated in the third quarter, and momentum appears to have moderated further in the fourth, according to the Commerce Department. Final GDP came in at 3.4%, down slightly from the previous read of 3.5%.

The government also said that data indicated U.S. consumer spending increased solidly in November, but wage growth remained moderate, suggesting the current pace of consumption was unlikely to be sustained.

Personal Spending was up 0.4%, higher than the 0.3% estimate. The previous month was revised higher to 0.8%. Personal Income, however, came in lower than expected at 0.2%, missing the 0.3% forecast. It was also lower than the previously reported 0.5%.

The Core PCE Price Index, the Fed’s preferred inflation measure, was 0.1%, below the 0.2% forecast.

Revised University of Michigan Sentiment jumped to 98.3, beating the 97.6 estimate and the previously reported 97.5.

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