The dollar index (DXY00) today fell to a 1-week low and is down by -0.30%. The dollar is moving lower today on some carryover pressure from Thursday, when a report from Challenger showed US job cuts in October surged by 175% y/y, the most in 22 years, bolstering the outlook for the Fed to keep cutting interest rates. Losses in the dollar accelerated today after the University of Michigan US Nov consumer sentiment index fell more than expected to a nearly 3.5-year low.
The dollar is still under pressure from the ongoing US government shutdown. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
Losses in the dollar are limited today due to weakness in stocks, which boosts liquidity demand for the dollar. Also, hawkish comments today from Fed Vice Chair Philip Jefferson were supportive of the dollar when he said the Fed should proceed slowly with any additional rate cuts.
The University of Michigan US Nov consumer sentiment index fell -3.3 to a nearly 3.5-year low of 50.3, weaker than expectations of 53.0.
News on inflation expectations was mixed. The University of Michigan US Nov 1-year inflation expectations unexpectedly increased to +4.7%, above expectations of no change at +4.6%. However, the Nov 5-10 year inflation expectations eased to +3.6%, weaker than expectations of +3.8% y/y.
Fed Vice Chair Philip Jefferson said interest rates continue to have a “somewhat restrictive” effect on the economy and “it makes sense to proceed slowly with rate cuts as we approach the neutral rate.”
The markets are discounting a 70% 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) climbed to a 1-week high today and is up by +0.34%. The euro is moving higher today due to a weaker dollar. Also, better-than-expected German trade news is supportive for the euro after German Sep exports and imports rose more than expected.
Central bank divergence is 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.
German trade news was better than expected as German Sep exports rose +1.4% m/m, stronger than expectations of +0.5% m/m and the largest increase in 10 months. Also, Sep imports rose +3.1% m/m, stronger than expectations of +0.5% m/m and the biggest increase in 8 months.
Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) today is up by +0.03%. The yen fell from a 1-week high against the dollar today and is slightly lower after Japanese economic news showed that household spending rose less than expected in September. Higher T-note yields today are also weighing on the yen.
The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike. The markets are discounting a 49% chance of a BOJ rate hike at the next policy meeting on December 19.
Japan Sep household spending rose +1.8% y/y, weaker than expectations of +2.5% y/y.
December COMEX gold (GCZ25) today is up +8.80 (+0.22%), and December COMEX silver (SIZ25) is up +0.135 (+0.28%).
Precious metals are moving higher today amid a weaker dollar, as the dollar index fell to a 1-week low. Also, today’s slide in equity markets has boosted some safe-haven demand for precious metals. In addition, strong central bank demand for gold is supportive for prices after China’s PBOC reported that bullion held in its reserves rose to 74.09 million troy ounces in October, the twelfth consecutive month the PBOC has boosted its gold reserves. Last Thursday, the World Gold Council reported that global central banks purchased 220 MT of gold in Q3, up 28% from Q2.
Precious metals continue to have some underlying safe-haven demand amid the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.
Gains in precious metals are limited today following hawkish comments from Fed Vice Chair Philip Jefferson, who said the Fed should proceed slowly with additional rate cuts as rates near a neutral level. Demand concerns for industrial metals are also weighing on silver prices after the October Chinese trade data came in weaker than expected.
Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices. Holdings in gold and silver ETFs have recently fallen after posting 3-year highs on October 21.
Chinese trade news was weaker than expected, a negative factor for industrial metals demand. China Oct exports unexpectedly fell -1.1% y/y, versus expectations of +2.9% y/y and the biggest decline in 8 months. Also, Oct imports rose +1.0% y/y, weaker than expectations of +2.7% y/y.
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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