Dollar Climbs on Yen Weakness

The dollar index (DXY00) today is up by +0.39% at a 1.5-week high. The dollar is moving higher today amid weakness in the yen, which tumbled to a 9.75-month low on concern that the Japanese government will support a stimulus package that would substantially increase Japan’s debt burden.  Today’s US trade news was also supportive of the dollar after the Aug trade deficit narrowed more than expected.

US MBA mortgage applications fell -5.2% in the week ended November 14, with the purchase mortgage sub-index down -2.3% and the refinancing sub-index down -7.3%.  The average 30-year fixed rate mortgage rose +3 bp to 6.37% from 6.34% in the prior week.

The US Aug trade deficit shrank to -$59.6 billion from -$78.2 billion in July, narrower than expectations of -$60.4 billion.

The markets are discounting a 47% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.

EUR/USD (^EURUSD) today is down by -0.23% at a 1-week low.  Today’s strength in the dollar is weighing on the euro.  Losses in the euro are limited after a report from Axios said the Trump administration has been secretly working with Russia to draft a new plan to end the war in Ukraine.

Central bank divergence is also supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.

Swaps are pricing in a 4% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.

USD/JPY (^USDJPY) today is up by +0.68%.  The yen tumbled to a 9.75-month low against the dollar today on dovish comments from Goushi Kataoka, a panelist advising Japanese Prime Minister Takaichi, which weighed on the yen when he said the BOJ is unlikely to raise interest rates again before March.  Losses in the yen accelerated amid concerns about the Japanese debt burden when Mr. Kataoka said a supplementary budget of around 20 trillion yen ($129 billion) will be necessary this fiscal year to boost domestic demand, far larger than the 13.9 trillion yen package compiled a year ago.

Today’s Japanese economic news was supportive for the yen after Sep core machine orders posted their biggest increase in 6 months.  Also, higher Japanese government bond yields are supportive of the yen after the 10-year JGB yield rose to a 17-year high of 1.781% today.