The dollar index (DXY00) on Thursday rose by +0.17%. The dollar recovered from a 5-week low on Thursday and moved higher after US weekly initial unemployment claims unexpectedly fell to a 3-year low, which was hawkish for Fed policy and positive for the dollar.
The dollar initially fell to a 5-week low in overnight trade Thursday after the yen rallied following a Reuters report that the Japanese government would tolerate a BOJ rate hike later this month. The dollar is also under pressure amid expectations that the Fed will cut interest rates at next week's FOMC meeting.
President Trump said on Tuesday that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported last week that National Economic Council Director Kevin Hassett is seen as the likely choice to succeed Powell. Hassett's nomination would be bearish for the dollar as he is seen as the most dovish candidate. In addition, Fed independence would come into question, as Hassett supports President Trump's approach to cutting interest rates at the Fed.
US Nov Challenger job cuts rose +23.5% y/y to 71,321, a smaller increase than expectations of +48.0% y/y but still the highest in three years for the month of November.
US weekly initial unemployment claims unexpectedly fell by -27,000 to a 3-year low of 191,000, showing a stronger labor market than expectations of an increase to 220,000.
US Sep factory orders rose +0.2% m/m, slightly weaker than expectations of +0.3% m/m.
The markets are discounting a 91% 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 Thursday fell by -0.20%. The euro fell from a 6-week high and moved lower after the dollar recovered from overnight losses on the hawkish US weekly jobless claims report. Also, the prospects for the war in Ukraine to continue weighed on the euro after US-Russian talks failed to reach a breakthrough in ending the war.
The euro was supported on Thursday by comments from ECB Executive Board member Cipollone, who said, "The Eurozone economy has been resilient, risks around inflation seem balanced, and our central scenario seems more and more credible."
Also, divergent central bank policies are supportive of the euro, with the ECB having finished with its rate-cutting cycle while the Fed is expected to keep cutting interest rates.
Eurozone Oct retail sales were unchanged m/m, right on expectations.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Thursday fell by -0.14%. The yen climbed to a 2.5-week high against the dollar on Thursday as expectations of an interest rate increase by the BOJ later this month improved, following a Reuters report that the BOJ is likely to raise rates this month and that the government would tolerate the move, according to government sources.
Also, higher Japanese government bond yields have strengthened the yen's interest rate differentials, with the 10-year JGB yield rising to an 18-year high of 1.941% Thursday. The yen fell back from its best level after T-note yields rose on hawkish US weekly jobless claims report.
The markets are discounting an 86% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) on Thursday closed up +10.50 (+0.25%), and March COMEX silver (SIH26) closed down -1.129 (-1.93%).
Gold and silver prices settled mixed on Thursday. Gold prices moved higher on Thursday due to the prospects for the war in Ukraine to continue, which boosted safe-haven demand for gold after US-Russian talks failed to reach a breakthrough in ending the war. Increased inflation expectations also boosted demand for gold as a hedge against inflation after the 10-year breakeven inflation rate rose to a 2-week high on Thursday.
Gains in gold were limited, and silver retreated on Thursday after the dollar index recovered from a 5-week low and turned higher. Also, Thursday's higher T-note yields were bearish for precious metals prices.
Precious metals prices were also undercut by Thursday's Reuters report that said the Japanese government would tolerate an interest rate increase by the BOJ later this month. In addition, Thursday's unexpected decline in US weekly initial unemployment claims to a 3-year low was a hawkish factor for Fed policy and negative for precious metals.
Precious metals have underlying support from expectations that the Fed will cut interest rates at next week's FOMC meeting, as markets are now discounting a 91% chance that the FOMC will cut the fed funds target range by 25 bp at the December 9-10 FOMC meeting, up from 30% two weeks ago. Precious metals also have safe-haven demand tied to uncertainty over US tariffs and geopolitical risks.
Silver has support due to concerns about tight Chinese silver inventories. Silver inventories in warehouses linked to the Shanghai Futures Exchange on November 21 fell to 519,000 kilograms, the lowest level in 10 years.
Strong central bank demand for gold is supportive of prices, following the most recent news that showed bullion held in China's PBOC reserves rose to 74.09 million troy ounces in October, the twelfth 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.
Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices, as ETF holdings have recently fallen after reaching 3-year highs on October 21. However, fund demand for silver has rebounded, as long holding in silver ETFs rose to a 3.25-year high on Wednesday.
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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