The dollar index (DXY00) on Wednesday rose by +0.06%. The dollar posted modest gains on Wednesday after hawkish comments from Atlanta Fed President Bostic, who said he favored keeping interest rates steady. Weakness in the yen is also supportive of the dollar, as the yen fell to a 9.25-month low against the dollar on Wednesday amid concerns that the Japanese government will pursue a more expansionary fiscal policy. Gains in the dollar were limited, as Wednesday’s stock strength reduced liquidity demand for the dollar.
The dollar is also under pressure amid signs that a resolution to the US government shutdown is nearing. After the Senate voted 60-40 on Monday to pass a temporary continuing resolution (CR) to fund the government, the House is expected to vote on the measure later Wednesday, and if approved, the bill goes to President Trump, who said he will sign it into law. The reopening of the government would allow the release of economic reports, which may show a weakening US economy, prompting the Fed to keep cutting interest rates.
Atlanta Fed President Raphael Bostic said, “Despite shifts in the labor market, the clearer and urgent risk is still price stability,” and he favors keeping interest rates steady until it is clear the Fed is on track to reach its 2% inflation goal.
The markets are discounting a 64% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
EUR/USD (^EURUSD) on Wednesday rose by +0.06%. The euro shook off early losses on Wednesday and moved higher due to hawkish comments from ECB Executive Board member Schnabel, who said interest rates are “absolutely” in a good place. Dollar strength on Wednesday limited the euro’s gains.
Central bank divergence is supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.
ECB Executive Board member Schnabel said interest rates are “absolutely” in a good place, as there’s positive momentum in the Eurozone economy and inflation risks are slightly tilted to the upside.
Swaps are pricing in a 4% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Wednesday rose by +0.36%. The yen tumbled to a 9.25-month low against the dollar on Wednesday and remains under pressure on concern that Japanese Prime Minister Takaichi will pursue a more expansionary fiscal policy after she said earlier this week that she would drop an annual budget-balancing goal. Losses in yen are limited after Japanese Finance Minister Katayama said, “We’re seeing one-sided, rapid currency moves of late,” signaling the government could soon intervene in the forex market to support the yen. Also, lower T-note yields on Wednesday were supportive of the yen.
The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike. The markets are discounting a 41% chance of a BOJ rate hike at the next policy meeting on December 19.
Today’s economic news was supportive for the yen after Japan’s Oct machine tool orders rose +16.8% y/y, the biggest increase in more than 3 years.
December COMEX gold (GCZ25) on Wednesday closed up +97.30 (+2.36%), and December COMEX silver (SIZ25) closed up +2.713 (+5.35%).
Precious metals soared on Wednesday, with gold and silver posting 3-week highs. Precious metals surged on speculation that the end of the US government shutdown will allow the release of economic reports showing the economy is weakening, which could prompt the Fed to keep cutting interest rates. In addition, demand for precious metals as a store of value has increased due to concerns that the Japanese government will pursue a more expansionary fiscal policy. Precious metals continue to have some underlying safe-haven demand amid the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.
On the negative side for precious metals is strength in stocks, which reduces safe-haven demand for precious metals. Also, expectations that lawmakers will finally end the US government shutdown are curbing some safe-haven demand for precious metals. On Monday, the Senate passed a CR to fund the government, and the House is expected to pass the measure later Wednesday, when it will be forwarded to President Trump, who said he will sign it into law.
Strong central bank demand for gold is supportive of prices, following last week’s report from China’s PBOC that bullion held in its reserves rose to 74.09 million troy ounces in October, the twelfth consecutive month the PBOC has boosted its gold reserves. Last Thursday, the World Gold Council reported that global central banks purchased 220 MT of gold in Q3, up 28% from Q2.
Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices. Holdings in gold and silver ETFs have recently fallen after posting 3-year highs on October 21.
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. This article was originally published on Barchart.com