The dollar index (DXY00) on Thursday fell by -0.14%. The dollar moved lower on Thursday amid concerns about a potential US government shutdown this weekend, and renewed US-Iran tensions are weighing on the dollar. Also, Thursday’s news showing the US Nov trade deficit rose more than expected to a four-month high was also bearish for the dollar.
The dollar recovered from its worst levels on Thursday as short covering emerged on signs that a deal to fund the government was close at hand. Senate Majority Leader Thune said an emerging deal would put the Department of Homeland Security on temporary stopgap funding while other agencies would get funding through September 30. Also, Thursday’s news that showed Nov factory orders posted their biggest increase in six months was supportive 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 dollar is being undercut by risks to the Federal Reserve’s independence, a growing US budget deficit, fiscal profligacy, and widening political polarization. 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) on Thursday rose by +0.04%. The euro posted modest gains on Thursday due to a weaker dollar. Also, Thursday’s news showing the Eurozone Jan economic confidence indicator rose more than expected to a 3-year high was 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 February 5.
USD/JPY (^USDJPY) on Thursday fell by -0.19%. Dollar weakness on Thursday was bullish for the yen. Also, Thursday’s news that showed the Japan Jan consumer confidence index unexpectedly rose to a 1.75-year high was supportive for the yen. In addition, 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 February 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 March 19.
February COMEX gold (GCG26) on Thursday closed up +14.80 (+0.28%), and March COMEX silver (SIH26) closed up +0.895 (+0.79%).
Gold and silver prices settled higher on Thursday, 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 silver (G26) posted a new all-time high of $120.07 a troy ounce.
Thursday’s weaker dollar and renewed US-Iran tensions were bullish 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.
However, precious metals fell back from their best levels on hopes that a deal to fund the government was close at hand. Senate Majority Leader Thune said Thursday that an emerging deal would put the Department of Homeland Security on temporary stopgap funding while other agencies would get funding through September 30. Without an agreement, government funding will lapse on Saturday for much of the federal government.
Precious metals are also 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 December 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 December 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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