The dollar index (DXY00) on Friday rose by +0.02%. The dollar recovered from early losses on Friday and finished little changed. Friday's rally in stocks reduced liquidity demand for the dollar. The dollar was also under pressure amid expectations that the Fed will cut interest rates at next week's FOMC meeting. The dollar recovered its losses after the University of Michigan's US Dec consumer sentiment index increased more than expected. Also, higher T-note yields on Friday were bullish for the dollar.
President Trump said on Tuesday that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported last week that National Economic Council Director Kevin Hassett is seen as the likely choice to succeed Powell. Hassett's nomination would be bearish for the dollar as he is seen as the most dovish candidate. In addition, Fed independence would come into question, as Hassett supports President Trump's approach to cutting interest rates at the Fed.
US Sep personal spending rose +0.3% m/m, right on expectations. Sep personal income rose +0.4% m/m, stronger than expectations of +0.3% m/m.
The US Sep core PCE price index, the Fed's preferred inflation gauge, rose +0.3% m/m and +2.8% y/y, right on expectations.
The University of Michigan US Dec consumer sentiment index rose by +2.3 points to 53.3, stronger than expectations of 52.0.
The University of Michigan US Dec 1-year inflation expectations eased to 4.1%, better than expectations of no change at 4.5% and the smallest pace of increase in 11 months. Dec 5-10 year inflation expectations eased to +3.2%, better than expectations of no change at 3.4% and the smallest pace of increase in 11 months.
The markets are discounting a 95% 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) on Friday fell by -0.03%. The euro gave up modest gains on Friday and turned slightly lower after the dollar recovered from early losses. The euro initially moved higher on Friday due to strength in Eurozone economic news that showed an upward revision to Eurozone Q3 GDP and a stronger-than-expected report on German Oct factory orders.
Divergent central bank policies are supportive of the euro, with the ECB having finished with its rate-cutting cycle while the Fed is expected to keep cutting interest rates.
Eurozone Q3 GDP was revised up slightly to +0.3% q/q and +1.4% y/y from the previously reported +0.2% q/q and +1.4% y/y.
German Oct factory orders rose +1.5% m/m, stronger than expectations of +0.3% m/m.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Friday rose by +0.13%. The yen fell from a 3-week high against the dollar on Friday and moved lower as higher T-note yields sparked long liquidation in the yen. Friday's weaker-than-expected report on Japan's Oct household spending was also bearish for the yen.
The yen initially moved higher on Friday on a Bloomberg report that said BOJ officials are ready to raise interest rates later this month, provided there's no major shock to the economy or financial markets in the meantime. Also, Friday's report showing the Japan Oct leading index, CI, rose more than expected to a 17-month high was bullish for the yen. In addition, higher Japanese government bond yields have strengthened the yen's interest rate differentials, with the 10-year JGB yield rising to an 18-year high of 1.951% on Friday.
The markets are discounting an 89% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Friday closed unchanged, and March COMEX silver (SIH26) closed up +1.562 (+2.72%).
Gold and silver prices settled mixed on Friday, with silver surging to a new contract high. Precious metals found support from Friday's news that showed the Sep core PCE price index, the Fed's preferred inflation gauge, rose as expected, cementing expectations of a Fed rate cut next week. Silver prices also rallied on carryover support from Friday's copper rally to a 4-month high.
Gold prices gave up their advance on Friday and settled little changed after the S&P 500 rallied to a 5-week high, dampening gold's safe-haven appeal. Also, higher global bond yields on Friday weighed on gold prices. In addition, gold was undercut by a Bloomberg report that said BOJ officials are ready to raise interest rates later this month, provided there's no major shock to the economy or financial markets.
Precious metals have underlying support from expectations that the Fed will cut interest rates at next week's FOMC meeting, as markets are now discounting a 95% chance that the FOMC will cut the fed funds target range by 25 bp at the December 9-10 FOMC meeting, up from 30% two weeks ago. Precious metals also have safe-haven demand tied to uncertainty over US tariffs and geopolitical risks in Ukraine and the Middle East.
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.
Strong central bank demand for gold is supportive of prices, following the most recent news that showed bullion held in China's PBOC reserves rose to 74.09 million troy ounces in October, the twelfth 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.
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 3.25-year high on Thursday.
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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