The dollar index (DXY00) climbed to a 2.75-month high on Thursday and finished up by +0.29%. Higher T-note yields on Thursday were positive for the dollar as the 10-year T-note yield rose to a 2.5-week high. The dollar also has carryover support from Wednesday on hawkish comments from Fed Chair Powell, who said a rate cut at the December FOMC meeting “is not a foregone conclusion.”
The easing of US-Chinese trade tensions is supportive of economic growth prospects after President Trump and President Xi Jinping agreed to extend a tariff truce, roll back export controls, and reduce other trade barriers.
The dollar is still under pressure from the ongoing US government shutdown. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
The markets are discounting a 72% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10. The markets are discounting an overall 82 bp rate cut by the end of 2026 to 3.06% from the current effective federal funds rate of 3.88%.
EUR/USD (^EURUSD) fell to a 2-week low on Thursday and finished down by -0.32%. The dollar’s strength on Thursday weighed on the euro. The euro recovered from its worst level after the ECB kept interest rates unchanged following Thursday’s policy meeting. Also, Thursday’s stronger-than-expected Eurozone Q3 GDP report and German Oct CPI report were hawkish for ECB policy and positive for the euro. In addition, upbeat comments from ECB President Lagarde were bullish for the euro when she said downside risks to growth have eased.
Central bank divergence is supporting the euro, with the ECB seen as finished with its rate-cut cycle while the Fed is expected to cut rates by at least another percentage point by the end of 2026.
Eurozone Q3 GDP rose +0.2% q/q and +1.3% y/y, stronger than expectations of +0.1% q/q and +1.2% y/y.
The Eurozone Oct economic sentiment indicator rose by 1.2 to a 2.5-year high of 96.8, beating expectations of 96.0.
German Oct CPI (EU harmonized) rose +0.3% m/m and +2.3% y/y, stronger than expectations of +0.2% m/m and +2.2% y/y.
As expected, the ECB kept its deposit facility rate unchanged at 2.00%.
ECB President Lagarde said the EU trade deal with the US, the ceasefire in the Middle East, and progress in China-US relations have “mitigated downside risks to growth.”
Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Thursday rose by +0.87%. The yen sank to an 8.5-month low against the dollar on Thursday after the BOJ kept interest rates unchanged following Thursday’s policy meeting. Also, higher T-note yields on Thursday undercut the yen. Losses in the yen accelerated Thursday after BOJ Governor Ueda said the BOJ did not risk falling behind the curve following its decision on Thursday to leave interest rates unchanged.
As expected, the BOJ on Thursday kept its target policy rate unchanged at 0.50% and BOJ Governor Ueda said, “We held rates steady today as we want to see more data on domestic wage-setting behaviors, while uncertainty remains high in overseas economies.”
The BOJ raised its 2025 Japan GDP forecast to +0.7% from +0.6% and kept its 2025 core CPI forecast unchanged at 2.7%.
December COMEX gold (GCZ25) on Thursday closed up +15.20 (+0.38%), and December COMEX silver (SIZ25) closed up +0.703 (+1.47%).
Precious metals prices recovered from early losses on Thursday and settled higher. Stronger central bank buying of gold is supporting prices after the World Gold Council on Thursday reported that global central banks purchased 220 MT of gold in Q3, up 28% from Q2, bringing total central bank gold purchases this year through September to 634 MT.
Signs of economic strength are supportive of industrial metals demand and silver prices following the Eurozone’s Q3 GDP, which expanded at a faster-than-expected pace. Also, an easing of US-China trade tensions may support economic growth and demand for industrial metals after President Trump and President Xi Jinping agreed to extend a tariff truce.
Precious metals initially moved lower on Thursday from a stronger dollar, with the dollar index climbing to a 2.75-month high. Also, higher global bond yields on Thursday were negative for precious metals. In addition, easing of US-China trade tensions has reduced safe-haven demand for precious metals. Precious metals also have some negative carryover from Wednesday when Fed Chair Powell said, “A further reduction in the policy rate at the December FOMC meeting is not a foregone conclusion.”
Precious metals have underlying safe-haven support due to the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence. In addition, recent weaker-than-expected US economic news has bolstered the outlook for the Fed to keep cutting interest rates, a bullish factor for precious metals.
Since posting record highs earlier this month, long liquidation pressures have weighed on precious metals prices. Also, this week’s rally in the S&P 500 to a new record high has curbed safe-haven demand for precious metals and sparked heavy long liquidation and ETF outflows. Holdings in gold ETFs have fallen from last Tuesday’s 3-year high, and silver ETF holdings have dropped from last Tuesday’s 3.25-year high.
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
