The dollar index (DXY00) on Wednesday fell by -0.50% and posted a 5-week low. The dollar was undercut by Wednesday’s weak Nov ADP report, which was dovish for Fed policy and cemented expectations for a Fed rate cut at next week’s FOMC meeting. The dollar failed to find support from Wednesday’s Nov ISM services index, which unexpectedly rose to a 9-month high.
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 MBA mortgage applications fell -1.4% in the week ended November 28, with the purchase mortgage sub-index up +2.5% and the refinancing mortgage sub-index down -4.4%. The average 30-year fixed rate mortgage fell -8 bp to 6.32% from 6.40% in the prior week.
The US Nov ADP employment change unexpectedly fell by -32,000, signaling a weaker labor market than the +10,000 increase expected and the biggest decline in more than 2.5 years.
US Sep manufacturing production was unchanged m/m, right on expectations.
The US Nov ISM services index unexpectedly rose +0.3 to a 9-month high of 52.6, stronger than expectations of a decline to 52.0.
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 Wednesday rose by +0.40% and posted a 6-week high. The dollar’s weakness on Wednesday was supportive of the euro. Also, Wednesday’s upward revision to the Eurozone Nov S&P composite PMI to a 2.5-year high showed economic strength and was bullish for the euro. In addition, 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 Oct PPI rose +0.1% m/m and fell -0.5% y/y, right on expectations.
The Eurozone Nov S&P composite PMI was revised upward by +0.4 to a 2.5-year high of 52.8 from the previously reported 52.4.
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 Wednesday fell by -0.45%. The yen rose on Wednesday amid weakness in the dollar. Also, higher Japanese government bond yields have strengthened the yen’s interest rate differentials, with the 10-year JGB yield rising to a 17-year high of 1.897% on Wednesday. The yen added to its gains today as T-note yields fell on the weaker-than-expected US Nov ADP employment report.
The markets are discounting an 81% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Wednesday closed up +11.70 (+0.28%), and March COMEX silver (SIH26) closed down -0.083 (-0.14%).
Gold and silver prices settled mixed on Wednesday. Dollar weakness was bullish for metals prices on Wednesday after the dollar index slid to a 5-week low. Also, Wednesday’s weaker-than-expected US Nov ADP employment report reinforces expectations of a Fed rate cut at next week’s FOMC meeting, boosting demand for precious metals as a store of value. The 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 have underlying support from safe-haven demand tied to uncertainty over US tariffs and geopolitical risks.
However, profit-taking emerged in silver prices Wednesday afternoon as Mar silver fell from a contract high, closed lower, and the nearest-futures silver contract (Z25) retreated from a new all-time high of $58.90 a troy ounce.
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 Tuesday.
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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