The dollar strengthened by 0.17% today due to GBP/USD weakness after UK consumer prices rose less than expected. The yen also weakened, benefiting the dollar amid Japanese fiscal concerns. Fed Governor Waller’s dovish comments pushed the dollar lower, although the Fed can continue cutting rates as they remain above neutral levels.
The dollar is facing pressure as the Fed increases liquidity by purchasing $40 billion in T-bills monthly. Concerns about a dovish Fed Chair appointment by Trump also weigh on the dollar. National Economic Council Director Kevin Hassett is seen as the most likely candidate, viewed as dovish by markets.
Fed Governor Waller expressed concerns about the soft US labor market, with stagnant job growth and anchored inflation at 2%. The Fed can lower interest rates gradually, given that they are still 50-100 basis points above the neutral level. Markets estimate a 24% chance of a 25 bp rate cut at the January FOMC meeting.
EUR/USD declined by 0.04% due to a stronger dollar and dovish Eurozone economic news. Revised November CPI and weaker Q3 labor costs signal a dovish ECB policy. The unexpected decline in Germany’s Dec IFO business conditions survey to a 7-month low adds bearish pressure on the euro.
Eurozone Nov CPI was revised down to +2.1% y/y, and Q3 labor costs eased to +3.3% y/y. The German Dec IFO business conditions survey fell unexpectedly to 87.6, below expectations. Markets anticipate no rate cut by the ECB at the upcoming policy meeting.
USD/JPY rose by 0.48% as the yen weakened against the dollar. Japanese fiscal concerns and positive economic news, such as higher exports and core machine orders, influenced the yen. Anticipation of a BOJ rate hike on Friday also supported the yen.
Japan’s Oct core machine orders unexpectedly rose by 7.0% m/m, while Nov exports increased by 6.1% y/y. However, Nov imports grew by 1.3% y/y, below expectations. Swaps indicate a 96% chance of a BOJ rate hike at the upcoming policy meeting.
Precious metals surged with gold up 1.00% and silver up 4.52%. Safe-haven demand rose due to escalating tensions in Venezuela and dovish Fed comments. Central bank gold demand and concerns over US tariffs and geopolitical risks supported prices.
Central bank gold demand remains strong, with China’s PBOC increasing reserves by 30,000 ounces in November. Global central banks purchased 220 MT of gold in Q3, a 28% rise from Q2. Silver is supported by tight Chinese inventories, reaching a 10-year low in November.
Long liquidation pressures have weighed on precious metals since mid-October, with ETF holdings falling. However, fund demand for silver rebounded recently. Despite fluctuations, strong central bank and investor demand continue to support precious metals prices.
Read more at Yahoo Finance: Dollar Gains on Weakness in the British Pound and Yen