The dollar index fell to a nearly 4-year low on Tuesday, ending down by -0.86%. This decline is attributed to foreign investors withdrawing capital from the US due to political risks, including the potential for tariffs on Canadian imports and threats of government shutdowns. Additionally, speculation on FX intervention with Japan adds pressure on the dollar.

US private payrolls rose by an average of 7,750 per week, the smallest increase in six weeks. The Nov S&P composite-20 home price index exceeded expectations, rising by +1.39% y/y. However, the US Jan consumer confidence index unexpectedly fell to an 11.5-year low, and the Richmond Fed manufacturing survey also fell short of expectations.

The FOMC meeting this week may result in a -25 bp rate cut, with expectations for a larger cut of -50 bp in 2026. The ECB is not expected to raise rates in 2026, while the BOJ may raise rates by +25 bp. These expectations, combined with a weak dollar, are driving the EUR/USD to a 4.5-year high and impacting the USD/JPY rate.

Gold and silver prices fluctuated on Tuesday but surged on Monday to all-time highs due to dollar weakness and political uncertainty. Precious metals are supported by safe-haven demand amid geopolitical risks and expectations of easier monetary policies. Central bank demand for gold remains strong, with fund demand for precious metals also increasing significantly.

Read more at Yahoo Finance: Dollar Sinks on US Fiscal and Political Risks