The dollar index (DXY00) rose by +0.13% on Friday as it recovered from Thursday’s 2-week low. The dollar moved higher on Friday, following hawkish comments from Kansas City Fed President Jeff Schmid and Dallas Fed President Lorie Logan, who argued against additional Fed rate cuts. The dollar fell back from its best level on Friday after stocks rebounded from early losses, reducing liquidity demand for the dollar.
The dollar also has carryover support from Thursday, when several Fed presidents said they favored keeping interest rates steady, knocking the chances of a Fed rate cut at next month’s FOMC meeting down to 42% from 70% last week.
Kansas City Fed President Jeff Schmid said, “I don’t think further cuts in interest rates will do much to patch over any cracks in the labor market, but could have longer-lasting effects on inflation as our commitment to our 2% objective increasingly comes into question.”
Dallas Fed President Lorie Logan said it’s hard to support a Fed rate cut in December absent supporting data, and “I don’t think the US job market needs further insurance rate cuts.”
The markets are discounting a 42% 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) fell by -0.12% on Friday as it fell back from Thursday’s 2-week high. The dollar’s strength on Friday weighed on the euro. Losses in the euro were limited after Friday’s economic news showed the Eurozone Q3 GDP was revised higher. Central bank divergence is also supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.
Eurozone Q3 GDP was revised upward by +0.1 to +1.4% y/y from the previously reported +1.3% y/y.
Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Friday fell by -0.01%. The yen posted modest gains on Friday. The yen found support from Friday’s news that Japan’s Sep tertiary industry index posted its biggest increase in four months. Also, higher Japanese government bond yields are supportive for the yen after the 10-year JGB bond yield rose to a 17-year high on Friday at 1.711%. The yen gave up most of its advance Friday as T-note yields moved higher.
The yen has recently been weak, falling to a 9.25-month low against the dollar on Wednesday due to Japanese political uncertainty and a delayed BOJ rate hike. Also, the concern that Japanese Prime Minister Takaichi will pursue a more expansionary fiscal policy is negative for the yen after she said earlier this week that she would drop an annual budget-balancing goal. The markets are discounting a 32% chance of a BOJ rate hike at the next policy meeting on December 19.
The Japan Sep tertiary industry index rose +0.3% m/m, right on expectations, and the biggest increase in four months.
December COMEX gold (GCZ25) on Friday closed down -100.30 (-2.39%), and December COMEX silver (SIZ25) closed down -2.484 (-4.67%).
Precious metals sold off sharply on Friday as expectations for Fed interest rate cuts were scaled back, prompting heavy liquidation in metals. The chances of a Fed rate cut at next month’s FOMC meeting fell to 43% Friday from 70% last week, after several Fed presidents argued this week for keeping interest rates steady. Losses in precious metals accelerated today after Kansas City Fed President Jeff Schmid and Dallas Fed President Lorie Logan cautioned against further Fed rate cuts.
Silver prices are also under pressure on Friday amid concerns about demand for industrial metals, following Chinese economic news showing that Oct industrial production rose less than expected and Oct new home prices declined for the twenty-ninth consecutive month.
Precious metals continue to have some underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.
Strong central bank demand for gold is supportive of prices, following last week’s report from China’s PBOC that bullion held in its reserves rose to 74.09 million troy ounces in October, the twelfth consecutive month the PBOC has boosted its gold reserves. Last Thursday, the World Gold Council 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.
China’s Oct industrial production rose +4.9% y/y, weaker than expectations of +5.5% y/y and the smallest increase in 14 months. Also, China’s Oct new home prices fell 0.45% m/m, the biggest decline in a year and the twenty-ninth 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. This article was originally published on Barchart.com
