The Dollar Index (DXY00) fell to a 1.5-week low on Friday and ended down -0.08%. The dollar gave up its early gains last Friday and moved lower on increased chances of the Federal Reserve cutting interest rates at next month’s FOMC meeting. Swaps markets are now pricing in an 83% chance of a Fed rate cut next month, up from 30% last week, weighing on the dollar. The strength in stocks on Friday also limited liquidity demand for the dollar.
The dollar is also under pressure after Bloomberg reported on Tuesday that Kevin Hassett heads the list of possible candidates to succeed Jerome Powell as chairman of the US Federal Reserve. Hassett’s nomination would be bearish for the dollar, as he is considered a moderate candidate. Additionally, the Fed’s independence would be in question, as Hassett supports President Trump’s approach of cutting interest rates at the Federal Reserve, which Trump has long sought to control.
Markets are pricing in an 83% 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 Friday rose +0.05%. The euro recovered from early losses on Friday and posted modest gains as the dollar weakened. The euro also gained support after eurozone October 1 inflation expectations rose unexpectedly and the German CPI for November rose more than expected, hawkish factors for ECB policy. An unexpected drop in Germany’s October retail sales report on Friday was bearish for the euro.
Eurozone 1-year inflation expectations unexpectedly rose to +2.8% from +2.7% in September, stronger than expectations for a decline to 2.6%. October’s three-year expectations were unchanged at 2.5%, right in line with expectations.
German October retail sales unexpectedly fell -0.3% MoM, weaker than expectations for a +0.2% MoM increase.
The German CPI for November (harmonized with the EU) increased by +2.6% year-on-year, stronger than expectations of +2.4% year-on-year and the largest increase in 9 months.
Swaps are pricing in a 2% chance that the ECB will cut rates by -25 basis points at the December 18 policy meeting.
USD/JPY (^USDJPY) fell -0.12% on Friday. The yen rose on Friday amid better-than-expected Japanese industrial production and retail sales reports. Furthermore, the Tokyo CPI for November remained above 2%, a hawkish factor for the BOJ’s policy. The yen retreated from its best level after Treasury yields rose.
Signs of weakness in Japan’s labor market capped the yen’s gains on Friday after Japan’s October unemployment rate remained unchanged at 2.6%, versus expectations for a drop to 2.5%, suggesting a weaker-than-expected labor market. Additionally, the October employment-to-applicants ratio unexpectedly decreased to 1.18, weaker than expectations for no change at 1.20.
Japan’s industrial production in October unexpectedly rose +1.4% MoM, stronger than expectations for a -0.6% MoM decline.
Japan Retail Sales in October rose +1.6% MoM, stronger than expectations of +0.8% MoM and the largest increase in 5 years.
Japan’s November Tokyo CPI rose +2.7% year-on-year, right in line with expectations. November Tokyo CPI, excluding fresh food and energy, rose +2.8% year-on-year, right in line with expectations.
Japan’s unemployment rate in October was unchanged at 2.6%, showing a weaker labor market than expectations for a drop to 2.5%. The October employment-to-applicants ratio unexpectedly fell to 1.18, weaker than expectations for no change at 1.20.
Markets are pricing in a 59% chance that the BOJ will raise rates at the next policy meeting on December 19.
December COMEX Gold (GCZ25) closed Friday up +53.10 (+1.27%) and December COMEX Silver (SIZ25) closed up +0.639 (+1.27%).
Gold and silver prices rose sharply on Friday, with gold hitting a two-week high and silver nearer futures (Z25) soaring to a new all-time high of $56.46 a troy ounce.
Expectations that the Federal Reserve will cut interest rates at next month’s FOMC meeting are driving demand for precious metals as a store of value. Markets are pricing in an 83% chance that the FOMC will reduce the fed funds target range by 25 bps at next month’s FOMC meeting, down from 30% last week. Trading in metals markets was subdued on Friday after a technical outage on the Chicago Mercantile Exchange disrupted trading in gold and silver futures and options on the Comex.
Demand for precious metals as a store of value has also increased after Bloomberg reported on Tuesday that Kevin Hassett is leading the field as a possible next chairman of the US Federal Reserve to replace Jerome Powell. Hassett is seen as a moderate, pro-liquidity candidate, and his nomination would call into question the independence of the Federal Reserve, as Hassett supports President Trump’s approach of cutting interest rates at the Federal Reserve, which Trump has long sought to control.
Additionally, precious metals have underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks and central bank purchases.
Concerns over tight Chinese silver supplies are a bullish factor for silver prices. Silver inventories in warehouses linked to the Shanghai Futures Exchange have fallen to the lowest level in 10 years.
On the downside for precious metals was Friday’s rally in stocks, which reduced safe-haven demand for precious metals. Additionally, improved prospects for ending the war in Ukraine have dampened safe-haven demand for precious metals.
Strong central bank demand for gold is supporting prices, following the latest news showing that bullion held in the People’s Bank of China’s 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. Additionally, the World Gold Council recently reported that global central banks purchased 220 MT of gold in the third quarter, up 28% from 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 recently fallen 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
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