The dollar index (DXY00) today is up by +0.37%. The dollar is moving higher today due to an increase in T-note yields, which strengthened the dollar's interest rate differentials. Also, weakness in the euro today is supportive of the dollar after EUR/USD fell to a 3-week low.
Gains in the dollar are limited due to concern over the Fed's independence and fears about capital flight with President Trump’s move to fire Fed Governor Lisa Cook. If Mr. Trump succeeds in firing Fed Governor Cook, foreign investors may lose faith in the Fed and the dollar and swap their dollar assets into non-dollar investments.
New York Fed President Williams said the US economy is slowing, not stalling, and he is optimistic about the state of the economy. He added that every FOMC meeting is "live" for interest rates and that at some point, it will be appropriate for us to adjust rates downward as we remain in a "modestly restrictive" stance on policy.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 87% at the September 16-17 FOMC meeting and at 52% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) today is down by -0.43% at a 3-week low. The euro came under pressure today after the German Sep GfK consumer confidence survey unexpectedly fell to a 5-month low. Also, political turmoil in France is bearish for the euro, following French Prime Minister Bayrou's call for a confidence vote that could bring down his government as soon as next month.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, as the US tries to broker a peace deal between the two countries. On Sunday, Russian Foreign Minister Lavrov said there was no meeting planned between the leaders of Russia and Ukraine and that there "needs to be an agenda first" before a meeting can take place. "This agenda is not ready at all." The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) today is up by +0.40%. Dollar strength today is weighing on the yen. Also, higher T-note yields today are undercutting the yen. In addition, safe-haven demand for the yen subsided after the Nikkei Stock Index rose by +0.30% today.
December gold (GCZ25) today is down -6.70 (-0.20%), and September silver (SIU25) is down -0.301 (-0.78%). Precious metal prices are moving lower today, with gold prices falling back from a two-week high. Today's dollar strength is weighing on the metals market. Also, higher T-note yields today are bearish for precious metals.
Losses in precious metals are limited as President Trump's move to fire Fed Governor Lisa Cook has sparked concerns about the Fed's independence. Additionally, political uncertainty in France is driving demand for gold as a safe-haven, following French Prime Minister Bayrou's call for a confidence vote that could bring down his government as soon as next month. Gold has continued safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East.
The fund buying of precious metals continues to support prices, following the rise in gold holdings in ETFs to a 2-year high on August 15 and the rise in silver holdings in ETFs to a 3-year high on Tuesday.
