The dollar index (DXY00) is down -0.30%, falling back from last Friday's 1-week high.  The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026. 

The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills in mid-December.  The dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar.  Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026.  Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.

In a bearish factor for the dollar, Fed Governor Stephen Miran said today, "If we don't adjust policy down, then I think we do run risks" of a recession.  However, he also said he doesn't foresee a recession.

The markets are discounting a 20% chance that the FOMC will cut the fed funds target range by -25 bp at the January 27-28 FOMC meeting.

EUR/USD (^EURUSD) is up +0.48% on weakness in the dollar.  The euro found support from comments by ECB officials today, who said they are satisfied with the current outlook for no interest rate cuts.

ECB Governing Council member Gediminas Simkus today indicated satisfaction with the current level of interest rates, saying, "We have inflation – headline and core – both now and in the near future, and mid-term, close to the 2% level.  The interest rate is seen by many as at a neutral level. Economic growth has improved though remains sluggish."

Meanwhile, ECB Governing Council member Peter Kazimir said today that the ECB is comfortable with current rates but stands ready to act if conditions change.  He said the current period of on-target inflation and steady economic expansion is "rather fragile" and that risks remain from tariffs and the Russia-Ukraine war.

Swaps are pricing in a 0% chance of a -25 bp rate cut by the ECB at the next policy meeting on February 5.

USD/JPY (^USDJPY) today is down -0.47%.  The yen has underlying support from last Friday's +25 bp rate hike by the Bank of Japan.  The yen also has support from interest rate differentials, with the 10-year JGB yield today rising +4.9 bp to 2.021% and posting a new 26-year high. 

The markets are discounting a 0% chance of a BOJ rate hike at the January 23 policy meeting.

February COMEX gold (GCG26) today is up +78.1 (+1.78%), and March COMEX silver (SIH26) is up +1.361 (+2.02%).  Feb gold and March silver today both posted new contract highs. Dec silver today (Z25) posted a new all-time nearest-futures high. 

Bullish factors for precious metals include the FOMC's recent announcement of a $40 billion per month liquidity injection into the US financial system.  Precious metals prices are also being boosted by geopolitical risks, as the US is looking to seize two more Venezuelan-linked oil tankers. Also, Ukraine late last week hit an oil tanker from Russia's shadow fleet in the Mediterranean Sea for the first time.

Precious metals have safe-haven support tied to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela.  In addition, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair. 

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.

Fund demand for precious metals remains strong, with long holdings in silver ETFs rising to a 3.5-year high last Tuesday.   

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