The Dollar Index (DXY00) rose to a 6-week high today and is up +0.36%. The dollar is rising today thanks to better-than-expected US economic news. Weekly jobless claims unexpectedly fell to a six-week low, and the Fed’s January Empire and January Philadelphia business outlook surveys rose more than expected. The dollar increased its gains today thanks to hawkish comments from Atlanta Federal Reserve President Raphael Bostic, who said that the Federal Reserve needs to maintain a tight monetary policy.
The dollar also gained support following comments from President Trump, who told Reuters he has “no plans” to fire Fed Chair Powell despite a Justice Department investigation into the central bank’s revamp.
US Initial Weekly Jobless Claims unexpectedly fell -9,000 to a six-week low of 198,000, showing a stronger labor market than expectations for an increase to 215,000.
The January US Manufacturing Survey of General Business Conditions rose +11.4 to 7.7, stronger than expectations of 1.0.
The Philadelphia Federal Reserve’s January US Business Outlook Survey rose +21.4 to a four-month high of 12.6, stronger than expectations of -1.4.
Atlanta Fed President Raphael Bostic said the Fed must remain restrictive because it expects inflationary pressures to continue into 2026.
Markets are pricing in the odds of a -25bp rate cut at the next FOMC meeting on January 27-28 at 5%.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by approximately -50bp in 2026, while the BOJ is expected to raise rates by another +25bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
The dollar is also under pressure as the Federal Reserve increases liquidity in the financial system, having started buying $40 billion a month in Treasury bills in mid-December. The dollar is also being weakened by concerns that President Trump intends to appoint a dovish Federal Reserve chair, which would be bearish for the dollar. Trump recently said he will announce his choice for the new Federal Reserve chair in early 2026. Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Federal Reserve chair, seen by markets as the most moderate candidate.
EUR/USD (^EURUSD) fell to a 6-week low today and is down -0.36%. The strength of the dollar today weighs on the euro. Losses in the euro are limited after today’s news showed that eurozone industrial production in November rose more than expected.
Eurozone industrial production in November rose +0.7% mom, stronger than expectations of +0.5% mom.
Swaps are pricing in a 1% chance that the ECB will raise rates +25 bps at the next monetary policy meeting on February 5.
USD/JPY (^USDJPY) is up +0.11% today. The yen is under pressure today from a stronger dollar. Additionally, the smallest increase in Japanese producer prices in 20 months last month is moderate for BOJ policy and negative for the yen. Additionally, higher Treasury yields today are weighing on the yen.
Losses in the yen are contained after a Bloomberg report said BOJ officials are paying more attention to the yen’s potential impact on inflation, suggesting the BOJ could consider raising interest rates if the yen continues to weaken.
Japan’s December PPI declined to +2.4% YoY from +2.7% YoY in November, right in line with expectations and the slowest pace of increase in 20 months.
The yen remains under pressure, following Monday’s Yomiuri report that Japanese Prime Minister Takaichi could dissolve the lower house of parliament at the start of the next parliamentary session on January 23 and call early elections on February 8 or 15. The yen is under pressure due to concerns that Takaichi’s expansionary fiscal policy will persist and that long-term inflation prospects will rise if the ruling LDP party wins a majority in an early election.
The yen is also being weakened by an escalation of tensions between China and Japan, following China’s announcement last week of export controls on items destined for Japan that could have military uses in retaliation for comments made by Japan’s prime minister about a potential conflict if China were to invade Taiwan. Export controls could worsen supply chains and negatively affect Japan’s economy.
Markets are pricing in a 0% chance of the BOJ raising rates at its next meeting on January 23.
February COMEX Gold (GCG26) is down -20.80 (-0.45%) today, and March COMEX Silver (SIH26) is down -1.245 (-1.36%).
Gold and silver prices are considerably lower today, with March silver falling from a new contractual high. Today’s rally in the dollar index to its six-week high has caused prolonged selling pressures in precious metals. Additionally, a decline in geopolitical risks in Iran has dampened some demand for safe-haven precious metals after President Trump said he had been assured that Iran would stop killing protesters, in a sign that the United States may postpone a threatened military response to the widespread demonstrations. Additionally, better-than-expected US economic news on weekly jobless claims and the January Empire and January Philadelphia Fed business outlook surveys are bullish for Fed policy and negative for precious metals. Finally, today’s hawkish comments from Atlanta Federal Reserve President Raphael Bostic weighed on the precious metals when he said that the Federal Reserve needs to maintain a tight monetary policy due to still high inflation.
Concerns about the independence of the Federal Reserve are driving demand for precious metals as a store of value, following the US Department of Justice’s threat to indict the Federal Reserve. Federal Reserve Chair Powell said the potential impeachment comes amid “constant threats and pressure” from the Trump administration to influence interest rate decisions. However, President Trump today told Reuters he has “no plans” to fire Fed Chair Powell, despite a Justice Department investigation into the central bank’s overhaul.
Precious metals are also supported after President Trump last Friday ordered Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds in an attempt to reduce borrowing costs and stimulate housing demand. The bond-buying move is seen as quasi-quantitative easing, boosting demand for precious metals as a store of value.
Precious metals have continued support amid safe haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East and Venezuela. Additionally, precious metals are supported by concerns that the Fed will pursue looser monetary policy in 2026 as President Trump intends to appoint a more dovish Fed chair. Additionally, increased liquidity in the financial system is driving demand for precious metals as a store of value, following the FOMC’s Dec. 10 announcement of a $40 billion monthly liquidity injection into the U.S. financial system.
Strong demand for gold from the central bank supports prices, following last Wednesday’s news that bullion held in China’s PBOC reserves increased by +30,000 ounces to 74.15 million troy ounces in December, the 14th consecutive month in which the PBOC has increased its gold reserves. Additionally, the World Gold Council recently reported that global central banks purchased 220 MT of gold in the third quarter, +28% more than in the second quarter.
Demand for precious metals funds remains strong, with long holdings in gold ETFs hitting a 3.25-year high on Wednesday. Additionally, long holdings in silver ETFs hit a 3.5-year high on December 23.
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
