The dollar index (DXY00) today is up slightly by +0.07%.  The dollar recovered early losses today and turned higher after St. Louis Fed President Alberto Musalem said he expects the US economy to bounce back next quarter and there’s limited room for additional Fed rate cuts.  Also, higher T-note yields today have strengthened the dollar’s interest rate differentials and are supportive of the dollar. 

The dollar was under pressure early today on optimism that the US government shutdown is nearing an end after a group of Senate Democrats broke with the rest of their party to vote with Republicans to advance a bill to reopen the government.  The reopening of the government would allow the release of economic reports, which may show a weakening US economy, prompting the Fed to keep cutting interest rates.  Also, the strength in stocks today has reduced liquidity demand for the dollar.

San Francisco Fed President Mary Daly said, “So far, the effects of the tariffs have largely been confined to goods, with little spillover into services inflation or inflation expectations, which remain relatively well-anchored around our 2%  target.”

St. Louis Fed President Alberto Musalem said he expects “a substantial rebound in the US economy in the first quarter, and there’s limited room for further interest rate reductions without monetary policy becoming overly accommodative.”

The markets are discounting a 63% 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) is down by -0.10%.  The euro is under pressure today due to a rebound in the dollar. The euro also fell after the Eurozone Nov Sentix investor confidence index unexpectedly declined. 

Central bank divergence is 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.

The Eurozone Nov Sentix investor confidence index unexpectedly fell -2.0 to -7.4, weaker than expectations of an increase to -4.0.

Swaps are pricing in a 4% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.

USD/JPY (^USDJPY) today is up by +0.44%.  The yen is under pressure today amid signs that Japanese Prime Minister Takaichi will pursue a more expansionary fiscal policy, after she said she would drop an annual budget-balancing goal.  Also, higher T-note yields today are weighing on the yen. On the positive side for the yen, the Japan Sep leading index CI rose more than expected to an 8-month high. 

The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike.  The markets are discounting a 49% chance of a BOJ rate hike at the next policy meeting on December 19.

The Japan Sep leading index CI rose +1.0 to an 8-month high of 108.0, stronger than expectations of 107.9.

December COMEX gold (GCZ25) today is up +87.90 (+2.19%), and December COMEX silver (SIZ25) is up +1.782 (+3.70%).

Precious metals are sharply higher today, with gold posting a 2-week high and silver climbing to a 2.5-week high.   Gold and silver are soaring today on speculation that the end of the US government shutdown will allow the release of economic reports showing the economy is weakening, which could prompt the Fed to keep cutting interest rates.  Precious metals also rose after Japanese Prime Minister Takaichi signaled a shift toward more expansionary fiscal policy by saying she would drop an annual budget-balancing goal, which boosted demand for precious metals as a store of value.  In addition, 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. 

Precious metals continue to have some underlying safe-haven demand amid the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.  

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.

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