The dollar index (DXY00) on Tuesday fell by -0.44%. The dollar is sliding after today’s weaker-than-expected US economic news on Sep retail sales, Sep core PPI, and weekly ADP employment bolstered the chances for a Fed rate cut at next month’s FOMC meeting. Also, falling bond yields have weakened the dollar’s interest rate differentials after the 10-year T-note yield fell to a 3.5-week low Tuesday at 3.987%. The dollar extended its losses after the Conference Board US Nov consumer confidence index fell more than expected to a 7-month low.
US Sep retail sales rose +0.2% m/m, weaker than expectations of +0.4% m/m. Sep retail sales ex-autos rose +0.3% m/m, right on expectations.
US Sep PPI final demand rose +2.7% y/y, stronger than expectations of +2.6% y/y. However, Sep PPI ex-food and energy rose +2.6% y/y, weaker than expectations of +2.7% y/y.
The latest weekly update from ADP showed US private payrolls fell by an average of -13,500 per week in the four weeks ending November 8.
The US Sep S&P CaseShiller composite-20 home price index rose +1.36% y/y, weaker than expectations of +1.40% y/y and the smallest pace of increase in more than two years.
The Conference Board US Nov consumer confidence index fell -6.8 to a 7-month low of 88.7, weaker than expectations of 93.3.
US Oct pending home sales rose +1.9% m/m, stronger than expectations of +0.2% m/m.
The markets are discounting an 80% 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 Tuesday rose by +0.45%. Tuesday’s weaker dollar was supportive of the euro. The euro also found support on Tuesday’s economic news, which showed that Eurozone Oct new car registrations rose for the fourth consecutive month. In addition, improved prospects for an end to the war in Ukraine boosted the euro after Ukraine said it had agreed to the terms of a peace deal with Russia, although Russia has yet to say if it accepts the agreement.
Eurozone Oct new car registrations rose +5.8% y/y to 917,000 units, the fourth consecutive monthly increase.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Tuesday fell by -0.56%. The yen rallied against the dollar on Tuesday amid concern that the Japanese government is close to intervening in the forex market to support the yen after Japanese Growth Minister Kiuchi said the government is watching currency movements, including speculative activity, with a high sense of urgency. The yen added to its gains on Tuesday as T-note yields declined.
The markets are discounting a 38% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) on Tuesday closed up +45.80 (+1.12%), and December COMEX silver (SIZ25) closed up +0.639 (+1.27%).
Gold and silver prices rallied sharply on Tuesday, with gold posting a 1-week high. Precious metals moved higher Tuesday after weaker-than-expected US economic news on Sep retail sales, Sep core PPI, and Nov consumer confidence bolstered expectations for the Fed to cut interest rates at next month’s FOMC meeting. Also, recent comments from New York Fed President Williams and Fed Governor Waller boosted demand for precious metals as a store of value when they said they supported a rate cut at the December FOMC meeting. Precious metals continue to have some underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.
On the negative side for precious metals are improving prospects for an end to the war in Ukraine, which curbs safe-haven demand for precious metals. Also, easing inflation expectations reduces demand for gold as an inflation hedge, as the 10-year breakeven inflation rate fell to a 7.25-month low of 2.112% on Tuesday.
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. Holdings in gold and silver ETFs have recently fallen after posting 3-year highs on October 21.
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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