The dollar index (DXY00) today is up by +0.17%. The dollar is moving higher today due to weakness in GBP/USD after UK November consumer prices rose less than expected. Also, weakness in the yen today is positive for the dollar as Japanese fiscal concerns weigh on the yen. The dollar fell back from its best level on dovish comments from Fed Governor Waller, who said the Fed can keep cutting rates as interest rates are still 50-100 bp above neutral.
The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills, effective last Friday. Finally, the dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar. Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.
Fed Governor Christopher Waller said the US labor market is "pretty soft," with close to zero job growth, and that inflation is "pretty well anchored" around 2%. He added that interest rates are still 50-100 basis points above neutral, and the Fed can steadily lower them with no rush.
The markets are discounting a 24% chance that the FOMC will cut the fed funds target range by 25 bp at the January 27-28 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.04%. The euro is under pressure today from a stronger dollar. The euro also moved lower after today's Eurozone economic news showed that Nov CPI was revised lower and Q3 labor costs posted their smallest increase in three years, both of which are dovish for ECB policy. In addition, today's unexpected decline in the German Dec IFO business conditions survey to a 7-month low is bearish for the euro.
The euro has support due to divergent central bank policies, with the Fed expected to continue cutting interest rates in 2026 while the ECB is seen to have finished its rate-cutting campaign.
Eurozone Nov CPI was revised downward to +2.1% y/y from the previously reported +2.2% y/y.
Eurozone Q3 labor costs eased to +3.3% y/y from +3.9% y/y in Q2, the smallest pace of increase in three years.
The German Dec IFO business conditions survey unexpectedly fell -0.4 to a 7-month low of 87.6 versus expectations of an increase to 88.2.
Swaps are pricing in a 0% chance of a -25 bp rate cut by the ECB at Thursday's policy meeting.
USD/JPY (^USDJPY) today is up by +0.48%. The yen is sliding today due to the dollar's strength. Also, concerns about Japanese fiscal policy are bearish for the yen after Kyodo reported that the Japanese government is considering a record budget of over 120 trillion yen ($775 billion) for fiscal 2026.
On the positive side for the yen was today's economic news showing that Japan's Nov exports rose more than expected and Oct core machine orders unexpectedly posted their largest increase in 7 months. Also, higher Japanese government bond yields strengthened the yen's interest rate differentials after the 10-year JGB yield climbed to an 18-year high of 1.983% today. In addition, the yen is climbing on expectations that the BOJ will raise interest rates by 25 bp at Friday's policy meeting.
Japan Oct core machine orders unexpectedly rose +7.0% m/m, stronger than expectations of -1.8% m/m decline and the largest increase in 7 months.
Japanese trade news was mixed as Japan's Nov exports rose 6.1% y/y, stronger than expectations of 5.0% y/y and the biggest increase in nine months. However, Nov imports rose by +1.3% y/y, weaker than expectations of +3.0% y/y.
The markets are discounting a 96% chance of a BOJ rate hike at the next policy meeting on Friday.
February COMEX gold (GCG26) today is up +43.20 (+1.00%), and March COMEX silver (SIH26) is up +2.862 (+4.52%).
Precious metals are sharply higher today, with Mar silver posting a contract high and nearest-futures (Z25) silver posting an all-time high of $65.28 a troy ounce. Escalating tensions in Venezuela are boosting safe-haven demand for precious metals after President Trump ordered a "total and complete blockade of all sanctioned oil tankers" going into and leaving Venezuela. Also, dovish comments today from Fed Governor Christopher Waller boosted demand for precious metals as a store of value, as he said the Fed can keep cutting rates, given that US interest rates are still 50-100 bp above neutral. In addition, fiscal concerns in Japan are supportive of precious metals demand as a store of value, following Kyodo's report that the Japanese government is considering a record budget of over 120 trillion yen ($775 billion) for fiscal 2026.
Precious metals have carryover support from last Wednesday, when the Fed said it would boost liquidity in the financial system by purchasing $40 billion of T-bills per month, which fuels demand for precious metals as a store of value. Also, precious metals have safe-haven demand tied to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela. In addition, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair.
Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China's PBOC reserves rose by +30,000 ounces to 74.1 million troy ounces in November, the thirteenth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported that global central banks purchased 220 MT of gold in Q3, up +28% from Q2.
Silver has support due to concerns about tight Chinese silver inventories. Silver inventories in warehouses linked to the Shanghai Futures Exchange on November 21 fell to 519,000 kilograms, the lowest level in 10 years.
Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices, as ETF holdings have recently fallen after reaching 3-year highs on October 21. However, fund demand for silver has rebounded, as long holding in silver ETFs rose to a nearly 3.5-year high on Tuesday.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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