The dollar index (DXY00) today is up by +0.09%. The dollar is slightly higher today on better-than-expected US economic news on home prices and the Dec MNI Chicago PMI. Also, higher T-note yields today have strengthened the dollar's interest rate differentials. Questions about the Fed's independence are limiting gains in the dollar after President Trump said Monday evening that he "still might" fire Fed Chair Powell. Also, strength in the Chinese yuan is undercutting the dollar after the yuan rallied to a 2.5-year high today.
The US Oct S&P CaseShiller composite-20 home price index rose +0.3% m/m and +1.3% y/y, stronger than expectations of +0.1% m/m and +1.1% y/y.
The US Dec MNI Chicago PMI rose +9.2 to 43.5, stronger than expectations of 40.0.
The markets are discounting the odds at 16% for a -25 bp rate cut at the FOMC's next meeting on January 27-28.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills in mid-December. The dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar. Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026. Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.
EUR/USD (^EURUSD) today is down by -0.13%. The dollar's strength today is weighing on the euro. Also, the prospects of the Russian-Ukrainian war dragging on are bearish for the euro after there was no breakthrough in weekend talks to end the war. Losses in the euro are limited after today's news showed Spain's Dec core CPI rose more than expected, a hawkish factor for ECB policy.
Spain Dec CPI (EU harmonized) rose +3.0% y/y, right on expectations. Dec core CPI rose +2.6% y/y, stronger than expectations of +2.5% y/y.
Swaps are pricing in a 1% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.
USD/JPY (^USDJPY) today is up by +0.19%. The yen is under pressure today due to a stronger dollar. Also, higher T-note yields today are undercutting the yen. Losses in the yen are contained on positive carryover from Monday, when the December 19 BOJ meeting showed that some policymakers signaled Japan's real interest rate remains very low, suggesting further rate increases are likely.
The markets are discounting a 1% chance of a BOJ rate hike at the next meeting on January 23.
February COMEX gold (GCG26) today is up +37.90 (+0.87%), and March COMEX silver (SIH26) is up +4.510 (+6.40%).
Gold and silver prices are sharply higher today, recovering some of Monday's plunge. Concerns over Fed independence boosted safe-haven demand for precious metals overnight after President Trump said he "still might" fire Fed Chair Powell. Precious metals prices are also seeing continued support from geopolitical concerns as the US continues its blockade of sanctioned oil tankers connected with Venezuela and launched a military attack on ISIS targets in Nigeria last Thursday.
Bullish underlying factors for precious metals include the FOMC's December 10 announcement of a $40 billion per month liquidity injection into the US financial system. Precious metals have safe-haven support tied to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela. In addition, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair.
Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China's PBOC reserves rose by +30,000 ounces to 74.1 million troy ounces in November, the thirteenth 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.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.25-year high on Monday. Also, long holdings in silver ETFs rose to a 3.5-year high last Tuesday.
