The dollar index (DXY00) on Monday rose slightly by +0.07%. The main supportive factor was Monday’s +2.7 bp rise in the 10-year T-note yield, which supported the dollar’s interest rate differentials. The dollar also had carry-over support from Fed Chair Powell’s warning last week that another rate cut in December is not a foregone conclusion.
Bearish factors for the dollar included the weaker-than-expected US manufacturing PMI report and dovish comments from Fed Governors Miran and Cook.
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Fed Governor Stephen Miran said Monday, “The Fed is too restrictive, neutral is quite a ways below where current policy is.” He added, “Given my rather more sanguine outlook on inflation than some of the other members of the committee, I don’t see a reason for keeping policy as restrictive.” Mr. Miran recently took a leave of absence from the White House Council of Economic Advisers to take a temporary job as a Governor at the Fed.
Also on the dovish side, Fed Governor Lisa Cook said the risk of further labor-market weakness in greater than the risk of increased inflation. However, she did not commit to supporting an interest rate cut at the next FOMC meeting in December, and said the course of monetary policy is not on a pre-determined course.
In a slightly hawkish statement, Chicago Fed President Austan Goolsbee said he is more worried about inflation than the job market, but said he is not decided on policy going into the December FOMC meeting. He said he believes interest rates can still come down a “fair amount,” but “it would probably be most judicious to have the rates come down with inflation.”
The dollar is still under pressure from the ongoing US government shutdown. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
The markets are discounting a 67% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
As a bearish factor for the dollar, the Oct ISM manufacturing index fell by -0.4 points to 48.7, weaker than expectations for a +0.4 point rise to 49.5. Also, the Oct ISM prices paid index fell -3.9 points to 58.0, weaker than expectations of +0.6 to 62.5 and dovish for Fed policy.
As a supportive factor for the dollar, the final-October S&P US manufacturing PMI was revised slightly higher by +0.3 points to 52.5, stronger than market expectations for an unrevised 52.2.
EUR/USD (^EURUSD) fell -0.16%, undercut by mild strength in the dollar.
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.
The final-Oct HCOB Eurozone manufacturing PMI was unrevised at 50.0, in line with market expectations.
Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) rose +0.12%, consolidating mildly below last Thursday’s 8.5-month high.
The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike. The markets are discounting a 45% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) on Monday closed up +17.50 (+0.44%), and December COMEX silver (SIZ25) closed down -0.111 (-0.23%).
Gold prices on Monday saw some bargain hunting as prices stabilized following the sharp sell-off in the second half of October. However, bearish factors for precious metals prices on Monday include a slightly stronger dollar and higher 10-year T-note yields. Monday’s weaker-than-expected US PMI report undercut silver and industrial metals prices.
Gold prices saw support last Thursday from the World Gold Council’s report that global central banks purchased 220 MT of gold in Q3, up +28% from Q2.
Precious metals have underlying safe-haven support due to the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.
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. For more information please view the Barchart Disclosure Policy here.
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