The dollar index (DXY00) on Monday fell by -0.09%. The dollar posted modest losses on Monday ahead of Tuesday's US Nov payrolls report. The dollar came under pressure on Monday after the Dec Empire manufacturing survey of general business conditions unexpectedly contracted, a dovish factor for Fed policy. The dollar dropped to its low after Fed Governor Stephen Miran said the Fed's policy stance is unnecessarily restrictive on the economy. The dollar recovered from its worst level after stocks declined, boosting liquidity demand for the dollar.
The dollar is also under pressure as the Fed boosts liquidity in the financial system and began purchasing $40 billion a month in T-bills effective last Friday. Finally, 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.
The US Dec Empire manufacturing survey of general business conditions unexpectedly contracted -22.6 points to -3.9, weaker than expectations of 10.0.
The US Dec NAHB housing market index rose +1 to an 8-month high of 39, right on expectations.
Fed Governor Stephen Miran said the Fed's policy stance is unnecessarily restrictive for the economy, citing a benign inflation outlook and labor-market warning signs.
NY Fed President John Williams said, "The FOMC has moved the modestly restrictive stance of monetary policy toward neutral," amid increased risks to employment and somewhat lessened inflation risk.
The markets are discounting a 22% chance that the FOMC will cut the fed funds target range by 25 bp at the January 27-28 FOMC meeting.
EUR/USD (^EURUSD) rose by +0.09% and posted a 2.5-month high. The euro rose on Monday amid weakness in the dollar. Also, Monday's economic news showed that Eurozone Oct industrial production rose by the most in 5 months, which is bullish for the euro. In addition, the euro has support due to divergent central bank policies, with the Fed expected to continue cutting interest rates in 2026 while the ECB is seen to have finished its rate-cutting campaign.
Eurozone Oct industrial production rose +0.8% m/m, right on expectations and the biggest increase in 5 months.
Swaps are pricing in a 0% chance of a -25 bp rate cut by the ECB at Thursday's policy meeting.
USD/JPY (^USDJPY) on Monday fell by -0.37%. The yen climbed to a 1-week high against the dollar on Monday. Stronger-than-expected Japanese economic news on Monday boosted the yen after the Q4 Tankan large manufacturing outlook survey and the Oct tertiary industry index rose more than expected. Also, expectations that the BOJ will raise interest rates by 25 bp at Friday's policy meeting are supportive of the yen. In addition, lower T-note yields on Monday were bullish for the yen.
The Japan Q4 Tankan large manufacturing outlook survey rose +3 to 15, stronger than expectations of 12 and the highest in seven years.
The Japan Oct tertiary industry index rose +0.9% m/m, stronger than expectations of +0.2% m/m and the biggest increase in six months.
The markets are discounting a 97% chance of a BOJ rate hike at the next policy meeting on Friday.
February COMEX gold (GCG26) on Monday closed up +6.90 (+0.16%), and March COMEX silver (SIH26) closed up +1.582 (+2.55%).
Gold and silver prices settled higher on Monday due to a weaker dollar. Also, lower T-note yields on Monday were bullish for precious metals. In addition, dovish comments on Monday from Fed Governor Stephen Miran were supportive of precious metals as a store of value, as he said the Fed's policy stance is unnecessarily restrictive on the economy.
Gains in gold prices were contained on Monday on expectations that the BOJ will raise interest rates at this Friday's policy meeting. Also, silver prices fell back from their best level amid weaker-than-expected Chinese economic data, signaling reduced demand for industrial metals.
Precious metals have carryover support from last Wednesday, when the Fed said it would boost liquidity in the financial system by purchasing $40 billion of T-bills per month, which fuels demand for precious metals as a store of value. Also, precious metals have safe-haven demand 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.
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 nearly 3.5-year high last Friday.
China's Nov industrial production unexpectedly eased to +4.8% y/y from +4.9% y/y in Oct, versus expectations of an increase to +5.0% y/y. Also, China's Nov retail sales rose +1.3% y/y, weaker than expectations of +2.9% y/y and the smallest pace of increase in 2.75 years. In addition, China's new home prices fell 0.39% m/m, marking the 30th consecutive month of declines.
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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