The dollar index (DXY00) is up by +0.21% today. The dollar recovered from early losses and turned higher today as short covering emerged on comments from Senate Majority Leader Thune, who said government shutdown talks are going in the “right direction.” Also, today’s news that showed Nov factory orders posted their biggest increase in six months was supportive for the dollar.
The dollar today initially moved lower on concerns about a potential US government shutdown this weekend, and renewed US-Iran tensions are weighing on the dollar. Also, today’s news showing the US Nov trade deficit rose more than expected to a four-month high was also bearish for the dollar.
US weekly initial unemployment claims fell -1,000 to 209,000, showing a slightly weaker labor market than expectations of 205,000. However, continuing claims fell -38,000 to a 6-month low of 1.827 million, showing a stronger labor market than expectations of 1.850 million.
The US Nov trade deficit was -$56.8 billion, wider than expectations of -$44.0 billion and the largest deficit in 4 months.
US Nov factory orders rose +2.7% m/m, stronger than expectations of +1.6% m/m and the largest increase in 6 months.
The dollar sank to a nearly 4-year low on Tuesday after President Trump said he’s comfortable with the recent weakness in the dollar. Also, the dollar continues to be undercut as foreign investors pull capital from the US amid political risks.
The risk of another partial US government shutdown is also weighing on the dollar. Senate Democrats threatened to block a government funding deal over Department of Homeland Security/ICE funding after the ICE shooting of an ICU nurse in Minnesota on Saturday. There could be a partial government shutdown when the current stopgap funding measure expires this Friday. In addition, the dollar is being undercut by risks to the Federal Reserve’s independence, a growing US budget deficit, fiscal profligacy, and widening political polarization.
The dollar is also under pressure due to US political uncertainty after President Trump on Saturday threatened 100% tariffs on US imports from Canada if Canada signs a trade agreement with China. Canada is seeking other trade partners amid President Trump’s liberal use of tariffs during this second administration.
In addition, the dollar is weighed down by speculation that the US might coordinate FX intervention with Japan to boost the yen, which would dovetail with Mr. Trump’s apparent view that a weak dollar is good for the US as a stimulus to US exports. The yen rose to a 2.75-month high against the dollar on Tuesday as US authorities reportedly contacted market participants last Friday to check dollar/yen prices, a possible precursor to intervention.
The markets are discounting the odds at 14% for a -25 bp rate cut at the next policy meeting on March 17-18.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
EUR/USD (^EURUSD) today is down by -0.28%. The euro gave up an early advance today and turned lower after the dollar recovered from early losses and moved higher. Also, lower Eurozone government bond yields are weighing on the euro as the 10-year German 10-year bund yield fell to a 1-week low today, weakening the euro’s interest rate differentials.
The euro today initially moved higher due to a weaker dollar. Also, today’s news showing the Eurozone Jan economic confidence indicator rose more than expected to a 3-year high is bullish for the euro.
The Eurozone Jan economic confidence indicator rose +2.2 to a 3-year high of 99.4, stronger than expectations of 97.1.
Eurozone Dec M3 money supply rose +2.8% y/y, weaker than expectations of +3.0% y/y.
Swaps are pricing in a 2% chance of a +25 bp rate hike by the ECB at the next policy meeting on Feb 5.
USD/JPY (^USDJPY) today is down by -0.28%. The yen found support from today’s news that showed the Japan Jan consumer confidence index unexpectedly rose to a 1.75-year high. Also, lower T-note yields today are bullish for the yen.
The near-term upside in the yen may be limited, as early polls show Prime Minister Takaichi’s ruling Liberal Democratic Party is on track to win more seats in the Feb 8 snap election and may even secure a majority in the lower house, deepening fiscal concerns.
The yen fell sharply from Tuesday’s 2.75-month high against the dollar after US Treasury Secretary Bessent on Wednesday said the US is “absolutely not” intervening in the forex market in support of the yen. The yen had rallied earlier this week on speculation that US-Japan joint FX intervention may be forthcoming. US authorities reportedly called major banks last Friday to request dollar/yen quotes, a possible precursor to intervention. Also, Japanese Finance Minister Katayama said Tuesday that officials “will take action” in line with a US-Japanese FX agreement.
The Japan Jan consumer confidence index unexpectedly rose +0.7 to a 1.75-year high of 37.9, stronger than expectations of a decline to 37.1.
The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on Mar 19.
February COMEX gold (GCG26) today is down -113.20 (-2.13%), and March COMEX silver (SIH26) is down -3.764 (-3.32%).
Gold and silver prices fell from record highs today and are sharply lower as a rebound in the dollar sparked long liquidation pressures in precious metals. Also, upbeat comments from Senate Majority Leader Thune weighed on precious metals when he said talks to avoid a government shutdown this weekend were going in the “right direction.”
Precious metals initially extended their parabolic rallies today, with Feb gold posting a new contract and a record nearest-futures high of $5,586.20 an ounce. Also, Mar silver posted a contract high, and nearest-futures (G26) silver posted a new all-time high of $120.07 a troy ounce.
Concerns about a potential US government shutdown this weekend and renewed US-Iran tensions are boosting safe-haven demand for precious metals. Also, precious metals are surging as the dollar debasement trade gathers steam. Late Tuesday, President Trump said that he’s comfortable with the recent weakness in the dollar, which sparked demand for the metals as a store of value. Also, US political uncertainty, large US deficits, and uncertainty regarding government policies are prompting investors to cut holdings of dollar assets and shift into precious metals.
Precious metals are supported by safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair. In addition, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC’s Dec 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.
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 74.15 million troy ounces in December, the fourteenth 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.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on Wednesday. Also, long holdings in silver ETFs rose to a 3.5-year high on Dec 23.
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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