The dollar index (DXY00) today is up slightly by +0.05%. Higher T-note yields today are supportive of the dollar as the 10-year T-note yield rose to a 1.5-week high at 4.11%. Also, today’s action by the OECD to boost its US 2025 GDP forecast was supportive for the dollar. Strength in stocks today is limiting gains in the dollar as it reduces liquidity demand for the dollar.
The dollar is being undercut by expectations for a rate cut at next week’s FOMC meeting, as the swaps market now discounts a 96% chance of a rate cut at the Dec 9-10 FOMC meeting.
The Organization for Economic Co-operation and Development (OECD) kept its global 2025 GDP forecast unchanged at +3.2% but raised its US 2025 GDP forecast to +2.0% from a previous estimate of +1.8% and raised its Eurozone 2025 GDP estimate to +1.3% from +1.2%. The OECD said the global economy is weathering trade tariffs better than expected due to strong investment in artificial intelligence and supportive fiscal and monetary policies.
The markets are discounting a 96% 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 is down by -0.05%. The euro is slightly lower today due to the strength of the dollar. However, losses in the euro are limited after the Eurozone's Nov CPI rose more than expected, a hawkish factor for ECB policy. The euro also received support today after the OECD raised its estimate of the Eurozone 2025 GDP. In addition, today’s jump in the 10-year German bund yield to a 2-month high has strengthened the euro’s interest rate differentials. Finally, 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 Nov CPI rose +2,2% y/y, stronger than expectations of +2.1% y/y. Nov core CPI was unchanged from Oct at +2.4% y/y, right on expectations.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) today is up by +0.43%. The yen is under pressure today due to higher T-note yields. However, losses in the yen are limited after the Japan Nov consumer confidence index rose more than expected to a 19-month high. The yen also has carryover support from Monday when BOJ Governor Ueda signaled the BOJ may raise interest rates at this month’s policy meeting.
The Japan Nov consumer confidence index rose +1.7 to a 19-month high of 37.5, stronger than expectations of 36.2.
The markets are discounting an 82% chance of a BOJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) today is down -37.40 (-0.87%), and March COMEX silver (SIH26) is down -0.877 (-1.48%).
Gold and silver prices are moving lower today as they give back some of Monday’s sharp gains. Today’s stronger dollar has sparked some long liquidation pressures in precious metals. Also, higher global bond yields today are negative for precious metals. In addition, strength in stocks today has reduced safe-haven demand for precious metals.
Precious metals have support on the expectations that the Fed will cut interest rates at next week’s FOMC meeting, which is boosting demand for precious metals as a store of value. The markets are now discounting a 96% 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.
Also, precious metals have underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, and central bank buying.
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. Holdings in gold and silver ETFs have recently fallen after posting 3-year highs on October 21.
