The Dollar Index (DXY00) rose to a one-week high on Friday and ended up +0.19%. The dollar rose on Friday amid weakness in the yen. Additionally, upbeat comments on Friday from New York Federal Reserve President John Williams supported the dollar as he said some of the data we’re seeing is “pretty encouraging” and that he sees no signs of a sharp deterioration in employment data. The dollar retreated from its best level after the University of Michigan’s December US consumer confidence index was unexpectedly revised downward. Additionally, the strength in stocks on Friday limited the dollar’s rise.
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, starting last Friday. Finally, 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.
US existing home sales in November rose +0.5% MoM to hit a 9-month high of 4.13 million, although below expectations of 4.15 million.
The University of Michigan US December Consumer Confidence Index was unexpectedly revised downward by -0.4 to 52.9, weaker than expectations for an upward revision to 53.5.
The University of Michigan’s 1-year inflation expectations in the US were unexpectedly revised upward to 4.2% from the previously reported 4.1%.
New York Federal Reserve President John Williams said some of the data we’re seeing is “quite encouraging” and he sees no signs of a sharp deterioration in employment data. He added that he expects US GDP growth to be between 1.5% and 1.75% this year, picking up next year, and that “there’s no urgency to act further on monetary policy right now, because I think the cuts we’ve made have positioned us really well.”
Markets are pricing in a 22% chance that the FOMC will reduce the fed funds target range by 25 bps at the January 27-28 FOMC meeting.
EUR/USD (^EURUSD) fell to a one-week low on Friday and ended down -0.01%. The euro fell on Friday after weaker-than-expected eurozone economic news on November producer prices in Germany and GfK consumer confidence in January were dovish for ECB policy and bearish for the euro. Additionally, fiscal concerns in the eurozone are weighing on the euro after Germany announced Thursday that it will increase federal debt sales by almost 20% next year to a record 512 billion euros ($601 billion) to finance increased government spending.
The euro recovered most of its initial losses on Friday thanks to hawkish comments from ECB Governing Council member Pierre Wunsch, who said the ECB can keep monetary policy stable if the economy develops as expected.
German PPI for November fell -2.3% year-on-year, weaker than expectations of -2.2% year-on-year and the steepest pace of decline in 20 months.
The German Jan GfK consumer confidence index unexpectedly fell -3.5 to a 1.75-year low of -26.9, weaker than expectations for a rise to -23.0.
Pierre Wunsch, a member of the ECB’s Governing Council, said the ECB may leave interest rates unchanged for some time if the predictions in its latest outlook on the economy and prices come true.
Swaps are pricing in a 0% chance that the ECB will cut rates by -25 bps at the next monetary policy meeting on February 5.
USD/JPY (^USDJPY) on Friday rose +1.29%. The yen fell sharply to a four-week low against the dollar on Friday, even though the Bank of Japan raised interest rates by 25 bps after Bank of Japan Governor Ueda indicated that the Bank of Japan will be cautious about further interest rate hikes. The yen plunged on Friday despite a rise in Japanese government bond yields, as the 10-year JGB yield jumped to a 26-year high of 2.025%.
Concerns over Japanese fiscal policy are also bearish for the yen after Kyodo reported on Wednesday that the Japanese government is considering a record budget of more than 120 trillion yen ($775 billion) for fiscal 2026.
Japan’s national CPI in November rose +2.9% year-on-year, right in line with expectations. The national CPI for November, excluding fresh food and energy, increased +3.0% year-on-year, right in line with expectations.
As expected, the BOJ voted 9-0 to raise its overnight interest rate by +25 bps to 0.75% and said it will continue raising rates if its economic and price outlook is met.
BOJ Governor Ueda said he expects headline inflation to be below 2% in the first half of next year and that “the pace at which we adjust our rate will depend on the state of the economy and prices.”
Markets are pricing in a 0% chance of the BOJ raising rates at the January 23 policy meeting.
February COMEX Gold (GCG26) closed Friday up +22.80 (+0.52%), and March COMEX Silver (SIH26) closed up +2.270 (+3.48%).
Precious metals closed higher on Friday, with silver rising sharply as March silver hit a contract high and silver nearer futures (Z25) hit an all-time high of $66.85 a troy ounce. Recent weaker-than-expected US economic news is dovish for Federal Reserve policy and has reinforced expectations of additional rate cuts by the Fed, a bullish factor for precious metals. Thursday’s U.S. November core CPI report showed price growth slowed to the slowest pace in 4.5 years, and Friday’s news showed the University of Michigan’s U.S. December consumer confidence index was unexpectedly revised downward.
Precious metals are also supported as a safe haven linked to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East and Venezuela. Additionally, precious metals are supported by concerns that the Federal Reserve will pursue looser monetary policy in 2026 as President Trump intends to appoint a prudent Federal Reserve chair.
Dollar strength is negative for metal prices as the dollar index rose to a one-week high on Friday. Additionally, Friday’s rise in global bond yields was bearish for precious metals prices. Additionally, Friday’s BOJ rate hike of 25 bps is dampening demand for precious metals as a store of value. Finally, hawkish comments on Friday from New York Fed President Williams undermined precious metals as he said there is no urgency for the Fed to cut interest rates.
Strong demand for gold from the central bank supports prices, following recent news that bullion held in China’s PBOC reserves increased by +30,000 ounces to 74.1 million troy ounces in November, the 13th 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.
Silver is supported by concerns over low Chinese silver inventories. Silver inventories in warehouses linked to the Shanghai Futures Exchange fell on November 21 to 519,000 kilograms, the lowest level in 10 years.
Since hitting all-time highs in mid-October, long-term sell-off pressures have weighed on precious metals prices, as ETF holdings have recently fallen after hitting 3-year highs on October 21. However, demand for silver funds has recovered, as long-term holdings in silver ETFs rose to a nearly 3.5-year high on Tuesday.
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
