US Dollar Fund by Iluhanos via iStock
The dollar index (DXY00) has risen +0.06% today. End-of-month dollar purchases are supporting modest gains, with today being the last trading day of November. Currency trading was light, as futures and options trading on the Chicago Mercantile Exchange was suspended until early this morning due to a data center outage. The strength of stocks today is limiting the rise of the dollar.
The dollar is also under pressure after Bloomberg reported on Tuesday that Kevin Hassett heads the list of potential candidates to succeed Jerome Powell as chairman of the US Federal Reserve. Hassett’s nomination would be bearish for the dollar, as he is considered a moderate candidate. Additionally, the Fed’s independence would be in question, as Hassett supports President Trump’s approach of cutting interest rates at the Federal Reserve, which Trump has long sought to control.
Markets are pricing in an 84% chance that the FOMC will reduce the fed funds target range by 25 bps at the next FOMC meeting on December 9-10.
EUR/USD (^EURUSD) is down -0.12% today. The strength of the dollar weighs on the euro today. Additionally, an unexpected drop in today’s German October retail sales report is bearish for the euro. Losses in the euro are contained after 1-year eurozone inflation expectations rose unexpectedly and the German CPI for November rose more than expected, hawkish factors for ECB policy.
Eurozone 1-year inflation expectations unexpectedly rose to +2.8% from +2.7% in September, stronger than expectations for a decline to 2.6%. October’s three-year expectations were unchanged at 2.5%, right in line with expectations.
German October retail sales unexpectedly fell -0.3% MoM, weaker than expectations for a +0.2% MoM increase.
The German CPI for November (harmonized with the EU) increased by +2.6% year-on-year, stronger than expectations of +2.4% year-on-year and the largest increase in 9 months.
Swaps are pricing in a 3% chance that the ECB will cut rates by -25 bps at the December 18 policy meeting.
USD/JPY (^USDJPY) is down -0.03% today. The yen is slightly higher today thanks to better than expected Japanese industrial production and retail sales reports. Furthermore, the Tokyo CPI for November remained above 2%, a hawkish factor for the BOJ’s policy. The yen retreated from its best level after Treasury yields rose.
Signs of weakness in the Japanese labor market capped the yen’s gains today after Japan’s October unemployment rate remained unchanged at 2.6%, suggesting a weaker-than-expected labor market, falling to 2.5%. Additionally, the October employment-to-applicants ratio unexpectedly decreased to 1.18, weaker than expectations for no change at 1.20.
Japan’s industrial production in October unexpectedly rose +1.4% MoM, stronger than expectations for a -0.6% MoM decline.
Japan Retail Sales in October rose +1.6% MoM, stronger than expectations of +0.8% MoM and the largest increase in 5 years.
Japan’s November Tokyo CPI rose +2.7% year-on-year, right in line with expectations. November Tokyo CPI, excluding fresh food and energy, rose +2.8% year-on-year, right in line with expectations.
Japan’s unemployment rate in October was unchanged at 2.6%, showing a weaker labor market than expectations for a drop to 2.5%. The October employment-to-applicants ratio unexpectedly fell to 1.18, weaker than expectations for no change at 1.20.
Markets are pricing in a 58% chance that the BOJ will raise rates at the next policy meeting on December 19.
December COMEX Gold (GCZ25) today rose +28.00 (+0.67%), and December COMEX Silver (SIZ25) rose +2.199 (+4.16%).
Gold and silver prices are rising today, with gold hitting a two-week high and silver nearer futures (Z25) rising sharply to a new all-time high of $55.20 a troy ounce.
Expectations that the Federal Reserve will cut interest rates at next month’s FOMC meeting sent the 10-year Treasury yield to a one-month low today and boosted demand for precious metals as a store of value. Trading activity in metals markets is subdued today after a technical outage on the Chicago Mercantile Exchange disrupted trading, including gold and silver futures and options on the Comex.
Demand for precious metals as a store of value has also increased after Bloomberg reported on Tuesday that Kevin Hassett is leading the field as a possible next chairman of the US Federal Reserve to replace Jerome Powell. Hassett is seen as a moderate, pro-liquidity candidate, and his nomination would call into question the independence of the Federal Reserve, as Hassett supports President Trump’s approach of cutting interest rates at the Federal Reserve, which Trump has long sought to control.
Furthermore, the Fed’s recent dovish comments have increased the probability of a rate cut at next month’s FOMC meeting to 84% and boosted demand for precious metals as a store of value. Additionally, precious metals have underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks and central bank purchases.
Concerns over tight Chinese silver supplies are a bullish factor for silver prices. Silver inventories in warehouses linked to the Shanghai Futures Exchange have fallen to the lowest level in 10 years.
On the downside for precious metals is today’s rally in stocks, which reduced safe-haven demand for precious metals. Additionally, improved prospects for ending the war in Ukraine have dampened safe-haven demand for precious metals.
Strong central bank demand for gold is supporting prices, following the latest news showing that bullion held in the People’s Bank of China’s reserves rose to 74.09 million troy ounces in October, the 12th consecutive month that the People’s Bank of China has increased its gold reserves. Additionally, the World Gold Council recently reported that global central banks purchased 220 MT of gold in the third quarter, up 28% from the second.
Since record highs were recorded in mid-October, long-term liquidation pressures have weighed on precious metals prices. Gold and silver ETF holdings have fallen recently after hitting 3-year highs on October 21.
On the date of publication, Rich Asplund had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. For more information, see Barchart’s Disclosure Policy here.
