The dollar index (DXY00) today climbed to a 5.25-month high and is up by +0.08%. The dollar is pushing higher today after the US Oct ADP employment change rose more than expected, a hawkish factor for Fed policy. The dollar added to its gains today when the Oct ISM services index rose more than expected to an 8-month high.
The dollar also garnered some support today from a Washington Post report that said a handful of moderate Senate Democrats are considering voting to end the government shutdown. In addition, the dollar has carry-over support from Fed Chair Powell's warning last week that another rate cut in December is not a foregone conclusion.
Gains in the dollar are limited after stocks stabilized following Tuesday's rout, which dampened liquidity demand for the dollar. Also, 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 US Oct ADP employment change rose by +42,000, stronger than expectations of +30,000.
The US Oct ISM services index rose +2.4 to 52.4, stronger than expectations of 50.8 and the fastest pace of expansion in 8 months. However, price pressures in the service sector accelerated after the Oct ISM services prices paid sub-index unexpectedly rose +0.6 to a 3-year high of 70.0, versus expectations of a decline to 68.0.
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) today fell to a fresh 3-month low and is down by -0.02%. Dollar strength today is weighing on the euro. Easing producer price pressures in the Eurozone are also dovish for ECB policy and negative for the euro after the Eurozone Sep PPI fell more than expected. Losses in the euro are limited after the Eurozone Oct S&P composite PMI was revised upward and after German factory orders rose by the most in 5 months.
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 Eurozone Oct S&P composite PMI was revised upward by +0.3 to 52.5 from the previously reported 52.2, the strongest pace of expansion in nearly 2.5 years.
Eurozone Sep PPI fell -0.1% m/m and -0.2% y/y, slightly weaker than expectations of no change m/m and -0.2% y/y.
German Sep factory orders rose +1.1% m/m, stronger than expectations of +0.9% m/m and the biggest increase in 5 months.
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) today is up by +0.36%. The yen is under pressure today but remains above Tuesday's 8.5-month low against the dollar. The yen retreated on the dovish minutes of the BOJ's September 17-18 policy meeting, which showed that some policymakers expressed caution about raising interest rates. Also, higher T-note yields today are negative for the yen.
The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike. The markets are discounting a 48% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) today is up +18.30 (+0.46%), and December COMEX silver (SIZ25) is up +0.369 (+0.78%).
Precious metals are climbing today on 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. Precious metals also found support from today's minutes of the September 17-18 BOJ meeting, which stated that policymakers cited the need for caution on raising interest rates. Signs of stronger demand for industrial metals are bullish for silver prices after the Eurozone Oct S&P composite PMI was revised to a nearly 2.5-year high, and German Sep factory orders posted their biggest increase in five months.
Today's rally in the dollar index to a 5.25-month high is limiting gains in precious metals. Also, today's stock rebound has curbed some safe-haven demand for precious metals. In addition, higher T-note yields today are bearish for precious metals.
Gold prices have carry-over support last Thursday from the World Gold Council's report showing 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.
