The dollar index (DXY00) on Tuesday gave up an early advance and fell slightly by -0.08%. The dollar turned lower on Tuesday after T-note yields gave up an early advance, weakening the dollar’s interest rate differentials. Strength in stocks on Tuesday was bearish for the dollar as it reduced liquidity demand for the dollar. In addition, expectations for a Fed rate cut at next week’s FOMC meeting are undercutting the dollar, as the swaps market now discounts a 96% chance of a rate cut at the Dec 9-10 FOMC meeting.
The dollar initially moved higher on Tuesday amid higher T-note yields, after the 10-year T-note yield rose to a 1.5-week high of 4.11%. Also, Tuesday’s action by the OECD to boost its US 2025 GDP forecast was supportive for the dollar.
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, which Trump has long sought to control.
The Organization for Economic Co-operation and Development (OECD) kept its global 2025 GDP forecast unchanged at +3.2% but raised its US 2025 GDP forecast to +2.0% from a previous estimate of +1.8% and raised its Eurozone 2025 GDP estimate to +1.3% from +1.2%. The OECD said the global economy is weathering trade tariffs better than expected due to strong investment in artificial intelligence and supportive fiscal and monetary policies.
The markets are discounting a 98% 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 Tuesday rose by +0.12%. The euro recovered from early losses on Tuesday and turned higher after the dollar gave up an early advance. The euro also garnered support after Tuesday’s Eurozone’s Nov CPI rose more than expected, a hawkish factor for ECB policy. The euro also received support today after the OECD raised its estimate of the Eurozone 2025 GDP. 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 Nov CPI rose +2,2% y/y, stronger than expectations of +2.1% y/y. Nov core CPI was unchanged from Oct at +2.4% y/y, right on expectations.
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 Tuesday rose by +0.26%. The yen was under pressure on Tuesday due to higher T-note yields. However, the yen recovered from its worst level after T-note yields gave up early gains and turned lower. The yen was also supported after the Japan Nov consumer confidence index rose more than expected to a 19-month high. In addition, the yen has carryover support from Monday when BOJ Governor Ueda signaled the BOJ may raise interest rates at this month’s policy meeting.
The Japan Nov consumer confidence index rose +1.7 to a 19-month high of 37.5, stronger than expectations of 36.2.
The markets are discounting an 83% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Tuesday closed down -54.00 (-1.26%), and March COMEX silver (SIH26) closed down -0.439 (-0.74%).
Gold and silver prices moved lower on Tuesday as they gave back some of Monday’s sharp gains. Tuesday’s early dollar strength sparked some long liquidation pressures in precious metals. Also, strength in stocks on Tuesday reduced safe-haven demand for precious metals.
Precious metals are supported by expectations that the Fed will cut interest rates at next week’s FOMC meeting, boosting demand for them as a store of value. The markets are now discounting a 98% 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.
Also, precious metals have underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, and central bank buying.
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. 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
