The dollar index (DXY00) on Monday fell to a 2-week low and finished down by -0.05%. The yen’s strength is weighing on the dollar on Monday after BOJ Governor Ueda signaled a possible interest rate hike at this month’s policy meeting. Also, Monday’s weaker-than-expected Nov US ISM manufacturing index is bearish for the dollar. In addition, the dollar is under pressure amid expectations for a Fed rate cut at next week’s FOMC meeting, as the swaps market now discounts a 96% chance of a rate cut at the Dec 9-10 FOMC meeting. The dollar recovered from its worst level after the 10-year T-note yield rose to a 1-week high, which strengthened the dollar’s interest rate differentials.
The dollar is also weighed down by negative carryover from last Tuesday, when Bloomberg reported that Kevin Hassett is at the top of the list of potential candidates to succeed Jerome Powell as US Fed Chair. Hassett’s nomination would be bearish for the dollar as he is seen as the most dovish candidate. In addition, Fed independence would come into question, as Hassett supports President Trump’s approach to cutting interest rates at the Fed, which Trump has long sought to control.
The US Nov ISM manufacturing index unexpectedly fell -0.5 to a 4-month low of 48.2, weaker than expectations of an increase to 49.0. The Nov ISM price paid sub-index unexpectedly rose +0.5 to 58.5, stronger than expectations of a decline to 57.5 and a sign of lingering price pressures.
The markets are discounting a 96% 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) climbed to a 2-week high and finished up +0.09%. Monday’s weaker dollar supported gains in the euro. Also, hawkish comments on Monday from ECB Governing Council member and Bundesbank President Nagel were bullish for the euro, where he said Eurozone interest rates were in a good place. In addition, divergent central bank policies are supportive of the euro, with the ECB having finished with its rate-cutting cycle while the Fed is expected to keep cutting interest rates.
The Eurozone Nov S&P manufacturing PMI was revised downward by -0.1 to 49.6 from the previously reported 49.7, the steepest pace of contraction in 5 months.
ECB Governing Council member and Bundesbank President Nagel said, “Our projections suggest that interest rates in the Eurozone are currently in a good place.”
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Monday fell by -0.45%. The yen climbed to a 2-week high against the dollar on Monday due to hawkish comments from BOJ Governor Ueda, who signaled the BOJ may raise interest rates at this month’s policy meeting. Also, Monday’s -1.89% slump in the Nikkei Stock Index boosted safe-haven demand for the yen. The yen fell back from its best level on Monday after T-note yields rose.
Japan Q3 capital spending rose +2.9% y/y, weaker than expectations of +6.0% y/y. Also, Q3 capital spending ex-software rose +2.9% y/y, weaker than expectations of +5.4% y/y.
The Japan Nov S&P manufacturing PMI was revised downward by -0.1 to 48.7 from the previously reported 48.8.
BOJ Governor Ueda said the BOJ “will consider the pros and cons of raising the policy interest rate and make decisions as appropriate” by examining the economy, inflation, and financial markets at home and abroad.
The markets are discounting an 86% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Monday closed up +19.90 (+0.47%), and March COMEX silver (SIH26) closed up +1.979 (+3.46%).
Gold and silver prices rallied on Monday, with Feb gold posting a 1.25-month high and Mar silver posting a contract high. Nearest-futures silver (Z25) soared to a new all-time high of $58.48 a troy ounce.
Monday’s decline in the dollar index to a 2-week low is bullish for metals prices. Also, expectations that the Fed will cut interest rates at next week’s FOMC meeting are boosting demand for precious metals as a store of value. The markets are now discounting a 100% chance that the FOMC will cut the fed funds target range by 25 bp at the December 9-10 FOMC meeting, up from 30% two weeks ago.
Demand for precious metals as a store of value has also increased after Bloomberg reported last Tuesday that Kevin Hassett is leading the field as the potential next US Fed Chair to replace Jerome Powell. Hassett is seen as a dovish, pro-liquidity candidate, and his nomination would question the Fed’s independence, as Hassett supports President Trump’s approach to cutting interest rates at the Fed, which Trump has long sought to control.
Also, precious metals have underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, and central bank buying.
Silver has support due to concerns about tight Chinese silver inventories. Silver inventories in warehouses linked to the Shanghai Futures Exchange on November 21 fell to 519,000 kilograms, the lowest level in 10 years.
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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