The dollar index (DXY00) today is down by -0.28%. Today’s stock rally has curbed liquidity demand for the dollar. Losses in the dollar are contained due to today’s stronger-than-expected US economic news on weekly jobless claims and Q3 GDP.
US weekly initial unemployment claims rose +1,000 to 200,000, showing a stronger labor market than expectations of 209,000.
US Q3 GDP was revised upward by 0.1 to 4.4% (q/q annualized), stronger than expectations of no change at 4.3%.
US Nov personal spending rose +0.5% m/m, right on expectations. Nov personal income rose +0.3% m/m, weaker than expectations of +0.4% m/m.
The US Nov core PCE price index, the Fed’s preferred inflation gauge, rose +0.2% m/m and +2.8% y/y, right on expectations.
President Trump said Wednesday that he would refrain from imposing tariffs on goods from European nations that oppose his effort to take possession of Greenland, citing a “framework of a future deal” regarding the island. Mr. Trump said, “Based upon a very productive meeting that I have had with the Secretary General of NATO, Mark Rutte, we have formed the framework of a future deal with respect to Greenland and, in fact, the entire Arctic Region.”
The markets are discounting the odds at 5% for a -25 bp rate cut at the FOMC’s next meeting on January 27-28.
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. Last Friday, Mr. Trump said that he would announce his selection for the new Fed Chair within the next few weeks.
EUR/USD (^EURUSD) today is up by +0.34%. The euro is moving higher today amid dollar weakness. The euro also has carryover support from Wednesday, when President Trump said he would refrain from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland. The euro added to its gains today after the Eurozone Jan consumer confidence index rose more than expected to an 11-month high.
The Eurozone Jan consumer confidence index rose +0.8 to an 11-month high of -12.4, stronger than expectations of -13.0.
Swaps are pricing in a 0% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.
USD/JPY (^USDJPY) today is up by +0.08%. The yen fell to a 1-week low against the dollar today after a +1.7% rally in the Nikkei Stock Index reduced safe-haven demand for the yen. The yen also weakened after President Trump said on Wednesday that he had reached a framework of a deal with NATO on Greenland, which curbed safe-haven demand for the yen. Losses in the yen are limited ahead of Friday’s BOJ meeting, amid speculation of a hawkish pause by the BOJ to support the yen.
Today’s Japanese trade news was mixed for the yen. Dec exports rose +5.1% y/y, weaker than expectations of +6.1% y/y. Conversely, Dec imports rose +5.3% y/y, stronger than expectations +3.6% y/y and the biggest increase in 11 months.
The yen has been under pressure since last Monday’s Yomiuri report that said Japanese Prime Minister Takaichi may dissolve the lower house of parliament at the start of the next parliamentary session on Friday and call a snap election on February 8 or February 15. The yen fell to a 1.5-year low against the dollar last Wednesday due to concerns that Takaichi’s expansionary fiscal policy will persist and that the long-term inflation outlook will rise if the ruling LDP party secures a majority in a snap election.
The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on January 23.
February COMEX gold (GCG26) today is up +2.70 (+0.06%), and March COMEX silver (SIH26) is up +1.083 (+1.17%).
Gold and silver prices are rising today amid a weaker dollar. Gold also found support after Goldman Sachs raised its year-end gold price target to $5,400 from $4,900, citing intensifying demand from private investors and central banks. In addition, concerns that Japan’s expansionary fiscal policies will lead to soaring deficits are boosting demand for precious metals as a store of value. Gains in precious metals are limited as the easing of the Greenland crisis has reduced haven demand. Also, today’s strength in stocks has curbed safe-haven demand for precious metals.
Silver prices found support today after President Trump on Wednesday said he would not impose tariffs on European nations for opposing his stance on Greenland, a positive factor for economic growth. Also, today’s upward revision to US Q3 GDP is supportive of industrial metals demand and silver prices.
Precious metals have ongoing support amid safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, 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. In addition, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC’s December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.
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 74.15 million troy ounces in December, the fourteenth 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.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.25-year high on Monday. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23.
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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