At a Glance
- The US dollar index (DXY00) reached a one-week low, influenced by a surge in US job cuts and a significant drop in consumer sentiment.
- The ongoing US government shutdown is a key factor, potentially pressuring the Federal Reserve to consider interest rate cuts.
- Hawkish remarks from Fed Vice Chair Philip Jefferson are providing some support for the dollar, advising a slow approach to rate reductions.
- EUR/USD experienced a one-week high, benefiting from a weaker dollar and positive German trade data, with the ECB seen as nearing the end of its rate-cut cycle.
- Gold and silver prices saw modest gains, supported by a weaker dollar and central bank demand, though gains were capped by hawkish Fed commentary and concerns over industrial metals.
US Dollar Faces Downward Pressure
The US dollar index (DXY00) has fallen to a one-week low, marking a -0.30% decrease. This decline is partially attributed to lingering pressure from Thursday, when a report indicated a substantial 175% year-over-year surge in US job cuts for October, reaching a 22-year high. This data bolsters expectations that the Federal Reserve may opt to lower interest rates.
The dollar’s losses accelerated following the release of the University of Michigan’s US November consumer sentiment index, which dropped to a nearly 3.5-year low, falling below market expectations.
Government Shutdown and Fed Policy
The continued US government shutdown is a significant factor weighing on the dollar. The longer the shutdown persists, the greater the potential impact on the US economy, thereby increasing the likelihood of the Fed considering interest rate cuts.
Factors Limiting Dollar Losses
💡 Despite the downward trend, losses in the dollar are being somewhat contained by the weakness observed in equity markets. This situation typically drives increased liquidity demand for the dollar. Additionally, hawkish commentary from Federal Reserve Vice Chair Philip Jefferson provided support, as he emphasized the need for a slow and deliberate approach to any further interest rate reductions.
Key Economic Indicators Impacting Markets
The University of Michigan’s US November consumer sentiment index registered a notable decline, falling by -3.3 points to 50.3, its lowest level in almost 3.5 years and below the projected 53.0.
📊 Inflation expectations presented a mixed picture. The November 1-year inflation expectations from the University of Michigan unexpectedly rose to 4.7%, exceeding the forecast of no change at 4.6%. However, the 5-10 year inflation expectations eased to 3.6%, falling short of the expected 3.8% year-over-year.
Fed Vice Chair Philip Jefferson stated that current interest rates continue to exert a somewhat restrictive influence on the economy. He added, it makes sense to proceed slowly with rate cuts as we approach the neutral rate.
Market participants are currently pricing in a 70% probability that the FOMC will implement a 25 basis point reduction in the fed funds target range at its upcoming meeting on December 9-10.
EUR/USD and German Trade Data
The EUR/USD pair climbed to a one-week high, appreciating by +0.34%. The euro’s strength is largely driven by the weaker US dollar. Furthermore, better-than-expected German trade figures for September are providing support, with both German exports and imports rising more than anticipated.
Central bank divergence is also a supportive factor for the euro. The European Central Bank (ECB) is perceived as nearing the conclusion of its rate-cut cycle, while the Federal Reserve is expected to implement several more rate cuts by the end of 2026.
German trade data exceeded expectations, with September exports increasing by 1.4% month-over-month, surpassing the forecast of +0.5% and marking the largest increase in ten months. Imports also saw a significant rise of 3.1% month-over-month, well above the expected +0.5% and representing the biggest jump in eight months.
Market-implied probability suggests a 5% chance of a -25 basis point rate cut by the ECB at its policy meeting on December 18.
USD/JPY and Japanese Economic Activity
The USD/JPY pair is currently trading slightly higher by +0.03%. The yen had previously fallen from a one-week high against the dollar, influenced by Japanese economic data showing weaker-than-expected growth in household spending for September. Higher US Treasury note yields are also contributing to the downward pressure on the yen.
Recent weakness in the yen has been attributed to political uncertainty in Japan and a delayed approach by the Bank of Japan (BOJ) regarding interest rate hikes. The markets are discounting a 49% probability of a BOJ rate hike at its upcoming policy meeting on December 19.
Japan’s September household spending increased by 1.8% year-over-year, which was below the expected growth of 2.5% year-over-year.
Precious Metals Find Support
December COMEX gold has seen a gain of +8.80 (+0.22%), while December COMEX silver has risen by +0.135 (+0.28%).
Precious metals are experiencing upward momentum today, primarily driven by the weaker US dollar, which has reached a one-week low. The current slide in equity markets is also boosting safe-haven demand for precious metals. Additionally, robust central bank demand for gold continues to be supportive. China’s People’s Bank of China (PBOC) reported an increase in its bullion reserves to 74.09 million troy ounces in October, marking the twelfth consecutive month of reserve accumulation. Last Thursday, the World Gold Council announced global central banks purchased 220 metric tons of gold in the third quarter, a 28% increase from the second quarter.
📌 Underlying safe-haven demand for precious metals persists amid the ongoing US government shutdown, uncertainty surrounding US tariffs, geopolitical risks, significant central bank buying, and political pressures on the Federal Reserve’s independence.
âš¡ Gains in precious metals are being capped by hawkish commentary from Fed Vice Chair Philip Jefferson, who advocates for a cautious approach to further rate cuts as they near neutral levels. Concerns about demand for industrial metals are also impacting silver prices, following weaker-than-expected Chinese trade data for October.
Since reaching record highs in mid-October, precious metal prices have faced pressure from long liquidation. Holdings in gold and silver ETFs have recently declined after reaching three-year highs on October 21.
Chinese trade data for October indicated a slowdown, a negative factor for industrial metals demand. China’s exports unexpectedly fell by -1.1% year-over-year, contrary to expectations of +2.9% and marking the largest decline in eight months. Imports rose by 1.0% year-over-year, falling short of the anticipated 2.7%.
Expert Summary
The US dollar index is trading at a one-week low, influenced by disappointing US economic data and ongoing government shutdown concerns. While hawkish Fed commentary offers some support, market expectations lean towards future rate cuts. Meanwhile, the euro shows strength against the dollar, buoyed by positive German trade figures and diverging central bank policies. Precious metals are seeing modest gains due to a weaker dollar and safe-haven demand, though upward momentum is tempered by economic uncertainties and Fed policy signals.
