The dollar index (DXY00) Friday rose by +0.30%.  The dollar recovered from a 3-1/2 week low Friday and moved moderately higher.  Short covering emerged in the dollar Friday after the University of Michigan US Dec consumer sentiment index rose more than expected to an 8-month high.  Also, hawkish Fed comments supported the dollar when Fed Governor Bowman said the Fed should proceed cautiously with rate cuts, and Cleveland Fed President Hammack said the Fed is near the point of slowing interest rate cuts. 

The dollar Friday initially moved lower on the US Nov payroll report that showed the Nov unemployment rate unexpectedly increased, which boosted the chances for a Fed rate cut at the Dec 17-18 FOMC meeting to 85% from 70% before the report.

US Nov nonfarm payrolls rose +227,000, stronger than expectations of +220,000, and Oct was revised upward to +36,000 from the previously reported +12,000.  The Nov unemployment rate unexpectedly rose +0.1 to 4.2%, showing a weaker labor market than expectations of no change at 4.1%.

US Nov average hourly earnings rose +0.4% m/m and +4.0% y/y, stronger than expectations of +0.3% m/m and +3.9% y/y.

The University of Michigan US Dec consumer sentiment index rose +2.2 to an 8-month high of 74.0, stronger than expectations of 73.2.

US Oct consumer credit rose +$19.239 billion, stronger than expectations of +$10.010 billion.

Cleveland Fed President Hammack said policymakers are "at or near" the point where the Fed should slow the pace of interest rate cuts, citing a strong economy and still-elevated inflation.

Fed Governor Bowman said, "I would prefer that we proceed cautiously and gradually in lowering the policy rate as inflation remains elevated."

The markets are discounting the chances at 85% for a -25 bp rate cut at the December 17-18 FOMC meeting.

EUR/USD (^EURUSD) Friday fell by -0.26%.  The euro fell from a 3-week high Friday and turned lower after the dollar recovered from early losses and moved higher.  The euro was also under pressure after German Oct industrial production unexpectedly declined. 

The euro on Friday initially moved higher when the dollar briefly fell following the US Nov payroll report.  The euro also has carryover support from Thursday when French political risks eased after National Rally leader Le Pen said she sees no case for President Macron to quit under current conditions and that France can pass a budget for 2025 in the next few weeks.

German Oct industrial production unexpectedly fell -1.0% m/m, weaker than expectations of +1.0% m/m.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 11% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) Friday fell by -0.09%.  The yen rose moderately Friday due to better-than-expected Japanese economic reports on Oct household spending and Oct real cash earnings, which are hawkish for BOJ policy.  The yen added to its gains Friday after T-note yields tumbled on the US Nov payroll report.

The Japan Oct leading index CI fell -0.5 to 108.6, weaker than expectations of 108.8.

Japan Oct household spending fell -1.3% y/y, a smaller decline than expectations of -2.5% y/y. 

Japan Oct real cash earnings were unchanged y/y, stronger than expectations of -0.1% y/y.

February gold (GCG25) Friday closed up +11.20 (+0.42%), and March silver (SIH25) closed up +0.052 (+0.16%).  Precious metals on Friday recovered from early losses and settled slightly higher. Friday’s US Nov payroll report boosted the chances for a Fed rate cut later this month and was bullish for precious metals.  Also, a decline in global bond yields Friday supported precious metals.  In addition, ramped-up hostilities in the Ukraine-Russia conflict support safe-haven demand for precious metals.

Gains in precious metals were limited Friday after the S&P 500 rose to a new all-time high, which reduced safe-haven demand for precious metals.  Also, the dollar recovered from a 3-1/2 week low Friday and rallied moderately, a bearish factor for precious metals.  In addition, hawkish Fed comments Friday weighed on precious metals after Fed Governor Bowman said the Fed should proceed cautiously with rate cuts and Cleveland Fed President Hammack said the Fed is near the point of slowing interest rate cuts.  Silver prices were undercut by Friday’s report that showed an unexpected decline in German October industrial production, a bearish for industrial metals demand and silver prices.