The dollar index (DXY00) on Tuesday rose by +0.11%. The dollar moved higher on Tuesday amid short covering ahead of the 2-day FOMC meeting, which ends on Wednesday. The dollar gained ground on Tuesday after the Oct JOLTS job openings unexpectedly rose to a 5-month high, a hawkish factor for Fed policy. The dollar's near-term upside is limited amid expectations that the Fed will cut the federal funds target range by 25 bp at the conclusion of the Tue/Wed FOMC meeting.
President Trump said last that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported last week that National Economic Council Director Kevin Hassett is seen as the likely choice to succeed Powell. Hassett's nomination would be bearish for the dollar as he is seen as the most dovish candidate. In addition, Fed independence would come into question, as Hassett supports President Trump's approach to cutting interest rates at the Fed.
US Oct JOLTS job openings unexpectedly rose by +12,000 to a 5-month high of 7.670 million, showing a stronger labor market than expectations of a decline to 7.117 million.
US Sep leading indicators fell -0.3% m/m, right on expectations.
The markets are discounting a 90% chance that the FOMC will cut the fed funds target range by 25 bp at the conclusion of the Tue/Wed FOMC meeting.
EUR/USD (^EURUSD) on Tuesday fell by -0.05%. The euro moved lower on Tuesday amid the dollar's strength. Also, Tuesday's weaker-than-expected German trade news was negative for the euro. Losses in the euro are limited due to divergent central bank policies, with the ECB having completed its rate-cutting cycle while the Fed is expected to keep cutting rates.
German trade news was weaker than expected after German Oct exports rose +0.1% m/m, weaker than expectations of +0.2% m/m. Also, Oct imports fell -1.2% m/m, weaker than expectations of -0.5% m/m.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Tuesday rose by +0.60%. The yen slid to a 2-week low against the dollar on Tuesday. The yen came under pressure on Tuesday due to comments from BOJ Governor Ueda, who said that the recent pace of increase in long-term Japanese bond yields is" somewhat fast" and the BOJ could increase its bond buying in exceptional cases. Losses in yen accelerated Tuesday after the stronger-than-expected US Oct JOLTS job openings report pushed T-note yields higher.
Japan Nov machine tool orders rose +14.2% y/y, the fifth consecutive month that orders have increased.
BOJ Governor Ueda said, "We are closer to 2% inflation on a sustained basis," and the BOJ will keep adjusting the easing level until prices are sustainable.
The markets are discounting a 90% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Tuesday closed up +18.50 (+0.44%), and March COMEX silver (SIH26) closed up +2.435 (+4.17%).
Gold and silver prices rallied on Tuesday, with silver sharply higher as Mar silver posted a contract high and nearest-futures (Z25) posting an all-time high of $60.52 a troy ounce. Expectations of lower US interest rates are propelling precious metals prices sharply higher. The FOMC is expected to cut the federal funds target range by 25 bp after the 2-day meeting concludes on Wednesday. Comments on Tuesday from BOJ Governor Ueda also boosted demand for precious metals as a store of value when he said the recent pace of increase in long-term Japanese bond yields is" somewhat fast" and the BOJ could increase its bond buying in exceptional cases.
Tuesday's stronger dollar was a bearish factor for precious metals. Also, Tuesday's better-than-expected Oct JOLTS job openings report pushed T-note yields higher and was negative for precious metals.
Precious metals have underlying support from expectations that the Fed will cut interest rates at the conclusion of the Tue/Wed FOMC meeting, as markets are now discounting a 90% chance that the FOMC will cut the federal funds target range by 25 bp. Precious metals also have safe-haven demand tied to uncertainty over US tariffs and geopolitical risks in Ukraine and the Middle East.
Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China's PBOC reserves rose by +30,000 ounces to 74.1 million troy ounces in November, the thirteenth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported that global central banks purchased 220 MT of gold in Q3, up +28% from Q2.
Silver has support due to concerns about tight Chinese silver inventories. Silver inventories in warehouses linked to the Shanghai Futures Exchange on November 21 fell to 519,000 kilograms, the lowest level in 10 years.
Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices, as ETF holdings have recently fallen after reaching 3-year highs on October 21. However, fund demand for silver has rebounded, as long holding in silver ETFs rose to a 3.25-year high last Friday.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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