The dollar index (DXY00) fell to a 2-week low on Thursday and finished down by -0.33%. The dollar retreated on Thursday amid speculation that the reopening of the US government would allow the release of delayed economic reports that could show a weakening US economy, prompting the Fed to keep cutting interest rates.
The dollar moved lower on Thursday despite hawkish Fed comments. Boston Fed President Susan Collins, Cleveland Fed President Beth Hammack, and St. Louis Fed President Alberto Musalem all said they favored keeping interest rates steady. Also, the weakness in stocks on Thursday boosted some liquidity demand for the dollar.
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St. Louis Fed President Alberto Musalem cautioned against further Fed rate cuts, saying, “I think there’s limited room for further easing without monetary policy becoming overly accommodative.”
Cleveland Fed President Beth Hammack said she doesn’t support any further interest rate cuts unless the economy changes, as “we’ve got this persistent high inflation that is sticking around.”
Wednesday evening, Boston Fed President Susan Collins said, “It will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment.”
The markets are discounting a 51% 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) rose to a 2-week high on Thursday and finished up by +0.37%. The weaker dollar on Thursday was bullish for the euro. 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.
On the negative side for the euro was the report on Eurozone Sep industrial production, which rose +0.2% m/m, weaker than expectations of +0.7% m/m.
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 Thursday fell by -0.19%. The yen moved higher on Thursday, recovering slightly from Wednesday’s 9.25-month low against the dollar. Thursday’s stronger-than-expected Japanese producer price report was hawkish for BOJ policy and was supportive of the yen.
The yen also has carryover support from Wednesday’s comments from Japanese Finance Minister Katayama, who said, “We’re seeing one-sided, rapid currency moves of late,” signaling the government could soon intervene in the forex market to support the yen. Higher T-note yields today are limiting gains in the yen.
The yen has recently been weak 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 34% chance of a BOJ rate hike at the next policy meeting on December 19.
Japan Oct producer prices rose +0.4% m/m and +2.7 % y/y, stronger than expectations of +0.3% m/m and +2.5% y/y.
December COMEX gold (GCZ25) on Thursday closed down -19.10 (-0.45%), and December COMEX silver (SIZ25) closed down -0.287 (-0.54%).
Precious metals gave up an early advance on Thursday and turned lower after T-note yields rose on hawkish Fed comments. A parade of Fed members on Thursday cautioned against additional Fed rate cuts, with Cleveland Fed President Beth Hammack, Boston Fed President Susan Collins, and St. Louis Fed President Alberto Musalem saying they favor keeping interest rates steady. The hawkish rhetoric has reduced the chances for a Fed rate cut at next month’s FOMC meeting to 51% from 70% last week.
Precious metals prices initially moved higher on Thursday, with Dec gold posting a 3-week high and Dec silver posting a contract high. Also, nearest-futures (X25) silver climbed to a new record high. Precious metals rose 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. In addition, demand for precious metals as a store of value has increased due to concerns that the Japanese government will pursue a more expansionary fiscal policy. 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.
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