The dollar index (DXY00) today gave up an early advance and is little changed. The dollar is slightly lower today after the Nov MNI Chicago PMI posted a 17-month low. Also, strength in stocks today has curbed liquidity demand for the dollar. The dollar initially moved higher today on better-than-expected US economic news, with weekly jobless claims unexpectedly falling to a 7-month low and Sep capital goods new orders rising more than expected. Also, higher T-note yields today have strengthened the dollar’s interest rate differentials.
The dollar is also under pressure after Bloomberg reported that Kevin Hassett is leading as the potential next US Fed Chair to replace Jerome Powell. Hassett’s nomination would be bearish for the dollar as he is seen as a dovish candidate. Also, Fed independence would come into question, as Hassett supports President Trump’s approach to cutting interest rates at the Fed, which Trump has long sought to control.
The markets are discounting an 81% 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) today is up by +0.18%. The euro found support today on comments from ECB Governing Council member Boris Vujcic, who said risks to economic growth and inflation in the Eurozone are balanced, and “for the time being,” interest rates are in a good place.
Uncertainty about the Russian-Ukrainian peace plan is limiting gains in the euro after European Commission Vice President Kallas said today that “we see no indication from Russia that they want peace.”
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) today is up +0.29%. Higher T-note yields are weighing on the yen. The yen is also under pressure from today’s 1.85% rally in the Nikkei Stock Index, which reduced safe-haven demand for the yen. In addition, today’s report showing an easing in Japan’s PPI service prices is dovish for BOJ policy and negative for the yen.
Losses in the yen are limited after today’s news showed Japan’s Oct machine tool orders and the Sep leading index CI were revised upward, supportive factors for the yen. Also, Reuters reported that the BOJ is preparing markets for a possible interest rate hike as soon as next month, amid inflationary risks posed by a weak yen.
The Japan Sep leading index CI was revised upward by +0.6 to an 11-month high of 108.6 from the previously reported 108.0.
Japan’s Oct machine tool orders were revised upward by +0.3 to 17.1% y/y from the previously reported +16.8% y/y, the largest increase in more than three years.
Japan Oct PPI services price eased to +2.7% y/y from +3.1% y/y in Sep, right on expectations.
The markets are discounting a 44% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) today is up +12.00 (+0.29%), and December COMEX silver (SIZ25) is up +0.890 (+1.75%).
Gold and silver prices are moving higher today, with gold posting a 1.5-week high. Demand for precious metals as a store of value has increased after Bloomberg reported that Kevin Hassett is leading the field as the potential next US Fed Chair to replace Jerome Powell. Hassett is seen as a dovish, pro-liquidity candidate, and his nomination would question the Fed’s independence, as Hassett supports President Trump’s approach to cutting interest rates at the Fed, which Trump has long sought to control.
Also, recent dovish Fed comments have increased the likelihood of a rate cut at next month’s FOMC meeting to 80% and boosted demand for precious metals as a store of value. In addition, precious metals have underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, and central bank buying.
Concerns over tightness in Chinese silver supplies are a bullish factor for silver prices. Silver inventories in warehouses linked to the Shanghai Futures Exchange have fallen to the lowest level in 10 years.
On the negative side for precious metals is today’s rally in stocks, which reduces safe-haven demand for precious metals. Also, improving prospects for an end to the war in Ukraine have curbed safe-haven demand for precious metals.
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. Holdings in gold and silver ETFs have recently fallen after posting 3-year highs on October 21.
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. This article was originally published on Barchart.com
