The dollar index (DXY00) rose +0.06% on Wednesday. The dollar posted modest gains on Wednesday after hawkish comments from Atlanta Federal Reserve President Bostic, who said he favored keeping interest rates stable. The yen’s weakness also supports the dollar, as the yen fell to a 9.25-month low against the dollar on Wednesday amid concerns that the Japanese government will pursue more expansionary fiscal policy. Dollar gains were limited as Wednesday’s stock strength reduced liquidity demand for the dollar.
The dollar is also under pressure amid signs that a solution to the US government shutdown is near. After the Senate voted 60-40 on Monday to approve a temporary continuing resolution (CR) to fund the government, the House is expected to vote on the measure later Wednesday and, if passed, the bill will go to President Trump, who said he will sign it into law. Reopening the government would allow the release of economic reports, which may show a weakening of the U.S. economy, leading the Federal Reserve to continue cutting interest rates.
Atlanta Fed President Raphael Bostic said, “Despite changes in the labor market, the clearest and most urgent risk remains price stability,” and he favors keeping interest rates stable until it is clear that the Fed is on track to meet its 2% inflation goal.
Markets are pricing in a 64% chance that the FOMC will reduce the fed funds target range by 25 bps at the next FOMC meeting on December 9-10.
EUR/USD (^EURUSD) on Wednesday rose +0.06%. The euro recovered from early losses on Wednesday and rose on hawkish comments from ECB Executive Board member Schnabel, who said interest rates are “absolutely” in a good place. The strength of the dollar on Wednesday limited the euro’s gains.
Central bank divergence supports the euro as the ECB is seen to have largely ended its rate cutting cycle, while the Federal Reserve is expected to cut rates several more times by the end of 2026.
ECB Executive Board member Schnabel said interest rates are “absolutely” in a good place as there is positive momentum in the eurozone economy and inflation risks are tilted slightly to the upside.
Swaps are pricing in a 4% chance that the ECB will cut rates by -25 basis points at the December 18 policy meeting.
USD/JPY (^USDJPY) rose +0.36% on Wednesday. The yen fell to a 9.25-month low against the dollar on Wednesday and remains under pressure on concerns that Japanese Prime Minister Takaichi will pursue more expansionary fiscal policy after he said earlier this week he would abandon his annual balanced budget target. Losses in the yen are limited after Japanese Finance Minister Katayama said, “We are seeing rapid and unilateral currency movements lately,” indicating that the government could soon intervene in the currency market to support the yen. Additionally, lower Treasury yields on Wednesday supported the yen.
The yen has been weak recently due to Japanese political uncertainty and the BOJ’s delayed rate hike. Markets are pricing in a 41% chance that the BOJ will raise rates at the next policy meeting on December 19.
Today’s economic news supported the yen after Japan’s October machine tool orders rose +16.8% year-on-year, the largest increase in over 3 years.
December COMEX Gold (GCZ25) on Wednesday closed up +97.30 (+2.36%) and December COMEX Silver (SIZ25) closed up +2.713 (+5.35%).
Precious metals soared on Wednesday, with gold and silver hitting three-week highs. 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 lead the Federal Reserve to continue 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 the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying and political pressure on the independence of the Federal Reserve.
The downside for precious metals is the strength in stocks, which reduces safe-haven demand for precious metals. Additionally, expectations that lawmakers will finally end the US government shutdown are dampening some safe-haven demand for precious metals. On Monday, the Senate passed a CR to fund the government, and the House is expected to approve the measure later Wednesday, when it will be sent to President Trump, who said he will sign it into law.
Strong demand for gold from the central bank is supporting prices, following last week’s report by the People’s Bank of China that bullion held in its reserves rose to 74.09 million troy ounces in October, the 12th consecutive month that the People’s Bank of China has increased its gold reserves. Last Thursday, the World Gold Council reported that global central banks purchased 220 MT of gold in the third quarter, 28% more than in the second.
Since record highs were recorded in mid-October, long-term liquidation pressures have weighed on precious metals prices. Gold and silver ETF holdings have fallen recently after hitting 3-year highs on October 21.
On the date of publication, Rich Asplund had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
