The dollar index (DXY00) on Monday rose by +0.25%. The dollar saw support from the rise in the Nov Empire manufacturing general business conditions index to a 1-year high. The dollar also had carryover support from last week when a parade of Fed presidents said they favored keeping interest rates steady, which reduced the chances of a Fed rate cut at next month's FOMC meeting to 41% from 70% earlier this month.
The US Nov Empire manufacturing general business conditions survey unexpectedly rose +8.0 to a 1-year high of 18.7, stronger than expectations of a decline to 5.8.
The markets are discounting a 41% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
On the bearish side for the dollar, Fed Governor Christopher Waller on Monday reiterated his call for a rate cut at the December FOMC meeting due to his view that the US labor market is near "stall speed." A noted dove, Mr. Waller is being considered by President Trump as the new Fed Chair to replace Jerome Powell, whose term as Fed Chair expires in May 2026.
EUR/USD (^EURUSD) on Monday fell by -0.27%. The euro is under pressure today from a stronger dollar. Also, comments on Monday from ECB Vice President Luis de Guindos weighed on the euro when he said financial stability risks in the Eurozone remain elevated. Monday's action by the European Commission to raise its 2025 Eurozone GDP estimate was supportive for the euro.
Central bank divergence is also 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 European Commission raised its 2025 Eurozone GDP forecast to +1.3% from a May forecast of +0.9% and kept its 2025 Eurozone inflation forecast unchanged from May at +2.1%.
ECB Vice President Luis de Guindos said financial stability risks "remain elevated in view of uncertainty over geoeconomic trends and the ultimate impact of tariffs in a volatile international environment."
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) rose by +0.43% and posted a new 9.5 month high. The yen was under pressure from Monday's weak Japanese GDP report, which also sparked concern that Japan's weak economy would bolster Prime Minister Takaichi's case for an ambitious stimulus package that would substantially increase Japan's debt burden. Monday's upward revision to Japan's Sep industrial production was supportive for the yen. Also, higher Japanese government bond yields were supportive for the yen after the 10-year JGB bond yield rose to a 17-year high of 1.74%.
Japan's Q3 GDP fell -1.8% (q/q annualized), the weakest report in 1.5 years but better than expectations of -2.4%. The Q3 deflator rose +2.8% y/y, a smaller increase than expectations of +3.1% y/y.
Japan's Sep industrial production was revised upward by +0.4 to +2.6% m/m from the previously reported +2.2% m/m.
The markets are discounting a 30% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) on Monday closed down -19.70 (-0.48%), and December COMEX silver (SIZ25) closed up +0.025 (+0.05%).
Gold prices on Monday were undercut by the rise in the dollar index and by fading expectations for another rate cut at December's FOMC meeting after the recent slew of hawkish Fed comments. The chances of a Fed rate cut at next month's FOMC meeting fell to 41% Monday from 70% earlier this month.
Bullish factors for gold included Fed Governor Waller's dovish comments and a -2 bp decline in the 10-year T-note yield.
Precious metals continue to have some underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed's independence.
Silver garnered some support from Monday's news that the Nov Empire manufacturing general business conditions survey unexpectedly rose to a 1-year high, a bullish factor for industrial metals demand. Also, the hike by the European Commission in its 2025 Eurozone GDP forecast was positive for industrial metals demand.
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.
