The dollar index (DXY00) on Monday rose by +0.09%. The dollar shook off early losses on Monday and moved higher due to a jump in T-note yields, which strengthened the dollar’s interest rate differentials. The dollar’s near-term upside is limited amid expectations that the Fed will cut the federal funds target range by 25 bp at the conclusion of the Tue/Wed FOMC meeting. Also, strength in EUR/USD on Monday weighed on the dollar due to hawkish ECB comments.
President Trump said last 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.
The markets are discounting a 99% chance that the FOMC will cut the fed funds target range by 25 bp at the conclusion of the Tue/Wed FOMC meeting.
EUR/USD (^EURUSD) on Monday fell by -0.03%. Monday’s recovery in the dollar from lower on the day to higher undercut the euro. Also, comments on Monday from Ukrainian leader Zelenskiy weighed on the euro when he said there is still no accord to end the Russian-Ukrainian war.
Losses in the euro were limited Monday after better-than-expected Eurozone economic news showed that Eurozone Dec Sentix investor confidence and German Oct industrial production rose more than expected. Also, hawkish comments on Monday from ECB Executive Board member Isabel Schnabel were supportive of the euro when she said she’s “rather comfortable” with market expectations that the ECB’s next interest rate move will be an increase.
Divergent central bank policies are also supportive of the euro, with the ECB having finished with its rate-cutting cycle while the Fed is expected to keep cutting interest rates.
The Eurozone Dec Sentix investor confidence index rose +1.2 to -6.2, stronger than expectations of -6.3.
German Oct industrial production rose +1.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 7 months.
ECB Executive Board member Isabel Schnabel said risks to the Eurozone economy and inflation are tilted to the upside, and she’s “rather comfortable” with market expectations that the ECB’s next interest rate move will be an increase.
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 Monday rose by +0.39%. The yen was under pressure on Monday from some weaker-than-expected economic news on Q3 Japanese GDP and the Nov eco-watchers outlook survey. The yen added to its losses on Monday as T-note yields rose.
Losses in yen are limited amid expectations that the BOJ will raise interest rates by +25 bp at its meeting later this month. 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 1.976% on Monday.
Japan Q3 GDP was revised downward to -2.3% (q/q annualized) from the previously reported -2.0%. The Q3 deflator was revised upward to +3.4% y/y from the previously reported +2.8% y/y.
The Japan Nov eco watchers outlook survey index fell -2.8 to 50.3, weaker than expectations of 52.6.
The markets are discounting a 58% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Monday closed down -25.30 (-0.60%), and March COMEX silver (SIH26) closed down -0.648 (-1.10%).
Gold and silver prices settled lower on Monday. A stronger dollar and higher global bond yields on Monday were bearish for precious metals prices. Also, hawkish central bank comments were negative for gold after ECB Executive Board member Isabel Schnabel said she’s “rather comfortable” with market expectations that the ECB’s next interest rate move will be an increase.
Precious metals have underlying support from expectations that the Fed will cut interest rates at the conclusion of the Tue/Wed FOMC meeting, as markets are now discounting a 99% chance that the FOMC will cut the federal funds target range by 25 bp. Precious metals also have safe-haven demand tied to uncertainty over US tariffs and geopolitical risks in Ukraine and the Middle East.
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 3.25-year high last Friday.
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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