The USD moved broadly higher, supported by rising Treasury yields and a run of better-than-expected US data. December durable goods orders fell -1.4%, but that was better than the -2.0% expected. Core measures were stronger: ex-transportation rose 0.9% (vs 0.3% exp) and nondefense capital goods ex-aircraft increased 0.6% (vs 0.4% exp). The positive surprises extended beyond that report. Housing starts and building permits improved, while industrial production rose 0.7% (vs 0.4% exp) and manufacturing output climbed 0.6% (vs 0.4% exp) — completing a solid round of upside economic surprises.
Treasury yields responded accordingly. The 2-year rose 2.7 bps to 3.4637%, the 5-year gained 3.1 bps to 3.6522%, the 10-year climbed 3.3 bps to 4.0865%, and the 30-year advanced 2.9 bps to 4.711%. A soft $60 billion 20-year Treasury auction added to the upward pressure in yields. The sale tailed by 2.0 bps, well above the six-month average tail of -0.4 bps, and the bid-to-cover ratio signaled lackluster demand. The combination of stronger data and weaker auction demand reinforced the move higher in rates and helped underpin the dollar.
The January FOMC minutes reinforced the “higher for longer” theme. While two officials dissented in favor of a 25 bp cut, nearly all participants supported holding rates at 3.5%–3.75%. Several members were open to “two-sided” guidance, explicitly acknowledging that policy could move in either direction — including hikes if inflation progress stalls. The staff outlook was revised stronger relative to December, with GDP projected to outpace potential growth through 2028, while inflation forecasts were nudged slightly higher. Officials warned that progress toward 2% inflation could be “slower and more uneven,” and some cautioned against cutting too soon for fear of undermining credibility.
Policy tone: Hawkish. Despite two dissents for easing, the overall message leaned cautious and inflation-focused, with little urgency to cut.
Adding to the inflation narrative, crude oil jumped $2.90 (+4.66%) to $65.22, marking the largest Monday gain since June 17 and one of the biggest daily advances since October 2023. The move followed reports of escalating geopolitical risks involving Iran, further supporting yields and the USD.
In FX, clarification that recent USDJPY rate-check activity was conducted on behalf of the US Treasury — not the NY Fed — tempered intervention speculation. Among majors, the NZDUSD was the weakest performer, sliding 1.36% to 0.5963 after dovish RBNZ messaging. The central bank held the OCR at 2.25% and signaled policy would remain accommodative, with Governor Beman expressing no urgency to hike. The move marked the pair’s largest one-day decline since April 2025.
In the UK, CPI was mixed — headline met expectations but core and services ran hotter. GBPUSD fell 0.53%, pressured by broad USD strength. EURUSD declined 0.60%, while USDJPY rose 1.0%. US equities ended higher but near the midpoint of their intraday ranges, as stronger growth data competed with higher yields and geopolitical uncertainty.
The major indices closed higher with the Nasdaq up for the 2nd consecutive day. The Dow and the S&P rose for the 3rd day in a row:
- Dow industrial average rose 0.28%
- S&P index rose 0.56%
- NASDAQ index rose 0.70%
Bitcoin is down $1100 or more 0.69% at $66,326. Gold rebounded by him hundred and $4 or 2.3% at $4982.79, and silver rose $3.79 or 5.17% at $77.29..
