Key Takeaways
- The US Dollar Index (DXY) experienced a decline, reaching a 1.5-week low, influenced by signs of a cooling US labor market and positive developments regarding the US government shutdown.
- Reports indicating a potential end to the US government shutdown are easing concerns about the dollar’s safe-haven appeal, while a clearer economic picture is expected to emerge post-reopening.
- EUR/USD saw gains, supported by a weaker dollar and comments from ECB officials suggesting current interest rates are appropriate, despite a dip in German economic growth expectations.
- USD/JPY experienced a slight decrease as the dollar retreated from previous highs due to US economic data and a more optimistic outlook for the Japanese yen following strong economic indicators.
- Precious metals settled mixed, with gold declining from recent highs and silver reaching a three-week peak, influenced by shifting dollar strength and expectations regarding Federal Reserve policy.
Dollar Index Faces Pressure Amid Labor Market Weakness and Shutdown Resolution
The US Dollar Index (DXY) saw a dip on Tuesday, falling to a 1.5-week low and closing down by 0.16%. This downturn was largely attributed to indications of a weakening US labor market. A report from ADP revealed that US private employers shed more jobs than they created in the four weeks leading up to October 25th. Additionally, the US October NFIB small business optimism index dropped to its lowest point in six months, adding bearish sentiment to the dollar.
Further contributing to the dollar’s pressure are the developing signs that a resolution to the US government shutdown is on the horizon. Following the Senate’s approval of a temporary continuing resolution (CR) with a 60-40 vote on Monday, the House was expected to vote on the measure on Wednesday. House Speaker Johnson expressed confidence in its swift passage, and President Trump indicated his intention to sign it into law. The reopening of the government is anticipated to allow for the release of economic reports, which may signal a cooling US economy and potentially prompt the Federal Reserve to consider further interest rate cuts.
📍 The US October NFIB small business optimism index declined by 0.6 points to 98.2, falling short of the expected 98.3 and marking a six-month low.
💡 ADP’s report on Tuesday indicated that US private employers reported an average net loss of 11,250 jobs per week during the four weeks ending October 25, 2025, suggesting a weakening labor market.
📊 Market participants are currently pricing in a 67% probability that the Federal Open Market Committee (FOMC) will implement a 25 basis point reduction in the fed funds target range at its upcoming meeting on December 9-10.
EUR/USD Gains on Dollar Weakness and ECB Commentary
The EUR/USD pair climbed to a 1.5-week high on Tuesday, concluding the trading day with a gain of 0.26%. The euro found support from the weaker performance of the US dollar. Additionally, remarks from ECB Executive Board member Elderson and Governing Council member Kocher on Tuesday provided a boost, as they deemed the current interest rate levels to be appropriate. However, tempering this positive sentiment was the unexpected decrease in German November ZEW survey expectations for economic growth.
A key factor supporting the euro is the perceived divergence in central bank policies. The European Central Bank (ECB) is largely seen as having concluded its interest rate-cutting cycle, whereas the Federal Reserve is anticipated to implement several more rate cuts by the end of 2026.
✅ The German November ZEW survey, which gauges expectations for economic growth, unexpectedly dropped by 0.8 points to 38.5, falling below the anticipated increase to 41.0.
⚡ ECB Executive Board member Elderson stated that the current ECB interest rate level is appropriate, but we will continue to be data-dependent and will decide one meeting at a time.
📌 ECB Governing Council member Kocher commented, The ECB is in a good position on interest-rate policy, and the expectation is that not much more will happen in the next few months.
📊 Current swap markets indicate a 3% chance of a 25 basis point rate cut by the ECB at its policy meeting scheduled for December 18.
USD/JPY Recovers Amid Shifting Dollar Sentiment and Yen Strength
The USD/JPY pair experienced a minor decline of 0.03% on Tuesday. The Japanese yen managed to recover from an 8.75-month low against the dollar and saw a slight upward movement as the dollar’s strength receded following less favorable US labor market news. Furthermore, a larger-than-anticipated increase in the Japan October Eco Watchers Outlook Survey, reaching a 2.25-year high, provided bullish momentum for the yen. The yen extended its gains on Tuesday as Treasury note prices rose.
Historically, the yen has faced weakness due to uncertainty surrounding Japanese politics and delays in the Bank of Japan’s (BOJ) rate hike decisions. Current market expectations suggest a 42% probability of a BOJ rate hike at its upcoming policy meeting on December 19.
📊 The Japan October eco watchers outlook survey increased by 4.6 points to 53.1, its highest level in 2.25 years, surpassing the expected figure of 48.8.
Precious Metals Mixed as Dollar Reverses, Shutdown Uncertainty Lingers
December COMEX gold futures closed down by 0.14% ($5.70) on Tuesday, while December COMEX silver futures rose by 0.86% ($0.433).
Precious metals exhibited mixed performance on Tuesday, with gold retreating from a two-week high and silver reaching a three-week peak. The decline in the US dollar index to a 1.5-week low provided a supportive environment for metals prices. Additionally, precious metals found underlying support from speculation that the resolution of the US government shutdown could lead to the release of economic data indicating a weakening economy, potentially influencing the Federal Reserve to maintain its interest rate cuts. Gold prices surged to their daily highs following the ADP report, which suggested a contraction in US private sector employment, a factor generally considered dovish for Fed policy.
Gold prices reversed earlier gains and turned lower as prospects for an end to the US government shutdown improved, diminishing the safe-haven demand for precious metals. The Senate’s passage of a continuing resolution on Monday, with anticipated approval from the House on Wednesday and subsequent signing by President Trump, signals a move towards government reopening.
⚡ Strong demand from central banks continues to underpin gold prices. Last week, 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 growth. The World Gold Council also reported that global central banks purchased 220 metric tons of gold in the third quarter, a 28% increase from the second quarter.
Precious metals are also benefiting from ongoing safe-haven demand amid the prolonged US government shutdown, uncertainties surrounding US tariffs, geopolitical risks, consistent central bank purchases, and political pressures on the Federal Reserve’s independence.
Despite recent pullbacks from record highs seen in mid-October, selling pressure has weighed on precious metals. Holdings in gold and silver ETFs have recently declined after reaching three-year highs on October 21.
Final Thoughts
Market sentiment shifted as the US dollar weakened amid softer labor data and progress toward resolving the government shutdown. While the euro benefited from dollar weakness and supportive ECB commentary, gold saw a pullback from recent highs despite underlying central bank demand.
