The dollar index (DXY00) on Tuesday fell by -0.05%. The dollar was under pressure on Tuesday as signs of weakness in the US labor market have bolstered the outlook for the Fed to keep cutting interest rates after ADP reported employers cut jobs this month. Losses in the dollar were limited by Tuesday's news that the Nov NAHB housing market index unexpectedly rose to a 7-month high. Also, Tuesday's slide in stocks boosted some liquidity demand for the dollar.
US weekly initial unemployment claims were 232,000 for the week ended October 18. Weekly continuing claims rose +10,000 to a 2-month high of 1.957 million.
ADP reported that US employers shed an average of 2,500 jobs per week in the four weeks ended November 1.
The US Nov NAHB housing market index unexpectedly rose +1 to a 7-month high of 38, stronger than expectations of no change at 37.
US Aug factory orders rose +1.4% m/m, right on expectations.
Tuesday's comments by Richmond Fed President Barkin were slightly dovish and negative for the dollar, as he said recent layoff announcements by large companies, such as Amazon, Verizon, and Target, "give additional cause for caution" about the labor market. He added that "inflation remains somewhat elevated but isn't likely to increase much."
The markets are discounting a 47% 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 fell by -0.07%. The euro gave up early gains on Tuesday and turned lower on heightened geopolitical risks from Russia due to hawkish comments from Kaja Kallas, the EU's top diplomat, when she said that Russia's recent aggression against the EU, including an explosion in Poland, should be considered terrorism. The euro initially moved higher on Tuesday as signs of weakness in the US labor market weighed on the dollar, benefiting the euro after ADP reported that US employers cut jobs this month.
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.
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 Tuesday rose by +0.17%. The yen fell to a new 9.5-month low against the dollar on Tuesday on dovish comments from BOJ Governor Ueda, who said the BOJ was gradually adjusting monetary easing, suggesting the BOJ is in no hurry to raise interest rates. The yen also had a negative carryover from Monday when Japan's weak Q3 GDP report sparked concern that Japan's weak economy would bolster Prime Minister Takaichi's case for an ambitious stimulus package that would substantially increase Japan's debt burden.
The yen recovered early losses and turned higher briefly on Tuesday after falling T-note yields sparked short covering in the yen. Also, Tuesday's sharp -3% slump in the Nikkei Stock index boosted some safe-haven demand for the yen. In addition, higher Japanese government bond yields were supportive of the yen after the 10-year JGB yield rose to a 17-year high of 1.761% on Tuesday.
BOJ Governor Ueda said the BOJ is in the process of slowly dialing back its easing support for the economy, saying, "We are in the process of making gradual adjustments to the degree of monetary easing."
The markets are discounting a 28% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) on Tuesday closed down -8.00 (-0.20%), and December COMEX silver (SIZ25) closed down -0.190 (-0.37%).
Gold and silver prices fell to 1-week lows on Tuesday amid reduced expectations for another rate cut at the December FOMC meeting following the recent slew of hawkish Fed comments. The chances of a Fed rate cut at next month's FOMC meeting fell to 47% on Tuesday from 70% earlier this month. However, losses in precious metals were limited after Tuesday's weekly ADP report showed employers shed jobs this month, which weighed on the dollar and raised the chance of a Fed rate cut next month to 47% from 40% on Monday.
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 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. For more information please view the Barchart Disclosure Policy here.
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