Dollar Up with Higher Prices Likely

CURRENCY FUTURES

The U.S. dollar Index is a little higher.

The long term fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.

Retail sales in the euro area increased 0.1% month-over-month in November 2024, which is less than market expectations of a 0.4% increase and after a 0.3% decline in October.

Germany recorded 4,215 company insolvencies in the last quarter of 2024, which is the highest number since 2009, according to a study from the Halle Institute for Economic Research.

U.K. businesses expect to increase prices and reduce staff numbers in response to an increase in employers’ social security contributions that will take effect in April, according to a Bank of England survey of more than 2,000 firms.

The long term fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.

INTEREST RATE MARKET FUTURES

The minutes from the Federal Reserve’s December 18 policy meeting, which were released yesterday, revealed that almost all members noted an increase in upside risks to the inflation outlook. The central bank indicated that it may be close to a point where it would be appropriate to slow the pace of policy easing.

Federal Reserve speakers today are Patrick Harker at 8:00, Susan Collins at 8:05, Thomas Barkin at 11:45, Jeffrey Schmid at 12:30 and Michelle Bowman at 12:35.

There is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 7% chance of a 25 basis point reduction.

It also appears that the FOMC will keep policies on hold at the March 19, 2025 meeting as well.

The U.S. economy is likely to perform well, which may cause the FOMC to be slower to add accommodation in 2025 than the consensus view.

Futures at the long end of the yield curve are likely to trend lower, while futures at the front end of the yield curve are likely to trade sideways.

STOCK INDEX FUTURES

Stock index futures are lower.

U.S. employers announced 38,792 job cuts in December 2024, which is the least in five months. This compared to 57,727 in November and 34,817 a year ago.

Traders are closely watching the Federal Reserve’s 2025 policy outlook, focusing on the likelihood of fewer interest rate cuts. However, this bearish influence is likely to be offset by prospects of improving corporate earnings as the U.S. economy is likely to grow faster than the consensus view.

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