The dollar index (DXY00) today climbed to a 6-week high and is up by +0.36%. The dollar is moving higher today on better-than-expected US economic news. Weekly jobless claims unexpectedly fell to a 6-week low, and the Jan Empire and Jan Philadelphia Fed business outlook surveys rose more than expected. The dollar added to its gains today on hawkish comments from Atlanta Fed President Raphael Bostic, who said the Fed needs to keep monetary policy restrictive.
The dollar also garnered support on comments from President Trump, who told Reuters that he "has no plans" to fire Fed Chair Powell despite a Justice Department probe into the central bank's renovation.
US weekly initial unemployment claims unexpectedly fell -9,000 to a 6-week low of 198,000, showing a stronger labor market than expectations of an increase to 215,000.
The US Jan Empire manufacturing survey of general business conditions rose +11.4 to 7.7, stronger than expectations of 1.0.
The US Jan Philadelphia Fed business outlook survey rose +21.4 to a four-month high of 12.6, stronger than expectations of -1.4.
Atlanta Fed President Raphael Bostic said the Fed needs to stay restrictive because he expects inflation pressures to continue through 2026.
The markets are discounting the odds at 5% for a -25 bp rate cut at the FOMC's next meeting on January 27-28.
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.
The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills in mid-December. The dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar. Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.
EUR/USD (^EURUSD) fell to a 6-week low today and is down by -0.36%. The dollar's strength today is weighing on the euro. Losses in the euro are limited after today's news showed Eurozone Nov industrial production rose more than expected.
Eurozone Nov industrial production rose +0.7% m/m, stronger than expectations of +0.5% m/m.
Swaps are pricing in a 1% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.
USD/JPY (^USDJPY) today is up by +0.11%. The yen is under pressure today from a stronger dollar. Also, the smallest increase in Japanese producer prices in 20 months last month is dovish for BOJ policy and negative for the yen. In addition, higher T-note yields today are weighing on the yen.
Losses in the yen are contained after a Bloomberg report said that BOJ officials are paying closer attention to the yen's potential impact on inflation, suggesting the BOJ may consider raising interest rates if the yen continues to weaken.
Japan Dec PPI eased to +2.4% y/y from +2.7% y/y in Nov, right on expectations and the smallest pace of increase in 20 months.
The yen remains under pressure, following Monday's Yomiuri report that Japanese Prime Minister Takaichi may dissolve the lower house of parliament at the start of the next parliamentary session on January 23 and call a snap election on February 8 or February 15. The yen is under pressure due to concerns that Takaichi's expansionary fiscal policy will persist and that the long-term inflation outlook will rise if the ruling LDP party secures a majority in a snap election.
The yen is also being undercut by an escalation of China-Japan tensions, following China's announcement last week of export controls on items destined for Japan that could have military uses in retaliation for comments made by Japan's prime minister about a potential conflict if China invaded Taiwan. The export controls could worsen supply chains and negatively affect Japan's economy.
The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on January 23.
February COMEX gold (GCG26) today is down -20.80 (-0.45%), and March COMEX silver (SIH26) is down -1.245 (-1.36%).
Gold and silver prices are sharply lower today, with Mar silver falling from a new contract high. Today's rally in the dollar index to a 6-week high has sparked long liquidation pressures in precious metals. Also, an easing of geopolitical risks in Iran has curbed some safe-haven demand for precious metals after President Trump said he had been assured that Iran would stop killing protesters, in a signal that the US could hold off on a threatened military response to the widespread demonstrations. In addition, better-than-expected US economic news on weekly jobless claims and the Jan Empire and Jan Philadelphia Fed business outlook surveys are hawkish for Fed policy and negative for precious metals. Finally, hawkish comments today from Atlanta Fed President Raphael Bostic weighed on precious metals when he said the Fed needs to keep monetary policy restrictive due to still high inflation.
Concerns about the Fed's independence are boosting demand for precious metals as a store of value, following the US Justice Department's threat to indict the Federal Reserve. Fed Chair Powell said the potential indictment comes amid "threats and ongoing pressure" by the Trump administration to influence interest rate decisions. However, President Trump told Reuters today that he "has no plans" to fire Fed Chair Powell despite a Justice Department probe into the central bank's renovation.
Precious metals also have support after President Trump last Friday directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds in an attempt to lower borrowing costs and spur housing demand. The bond-buying move is seen as quasi-quantitative easing, boosting demand for precious metals as a store of value.
Precious metals have ongoing support amid 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 last Wednesday's 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 3.25-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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