The dollar index (DXY00) on Monday fell by -0.70%. The dollar tumbled Monday after President-elect Trump picked Scott Bessent as the new US Treasury Secretary. Bessent is seen as a fiscal hawk and favors less government spending and more gradual tariffs, a negative factor for the dollar. Also, Bessent’s nomination eases concerns about Trump’s inflationary agenda, as he is expected to take a more gradual approach to policy. Monday’s rally in the S&P 500 to a new record also reduced liquidity demand for the dollar. The dollar extended its losses after today’s US economic news showed the Oct Chicago Fed national activity index fell more than expected to a 9-month low, and the Nov Dallas Fed manufacturing outlook rose less than expected.
The US Oct Chicago Fed national activity index fell -0.13 to a 9-month low of -0.40, weaker than expectations of no change at -0.28.
The US Nov Dallas Fed manufacturing outlook survey rose +0.3 to -2.7, weaker than expectations of -1.8.
The markets are discounting the chances at 52% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Monday rose by +0.84%. Monday’s slump in the dollar has sparked some short covering in the euro. The euro extended its gains on hawkish comments from ECB Chief Economic Lane, who said elevated services inflation would require the ECB to gradually lower interest rates. His comments knocked the chances of a 50 bp rate cut by the ECB at next month’s meeting to 33% from 48% last Friday. Monday’s economic news was negative for the euro after the German Nov IFO business confidence fell more than expected.
The German Nov IFO business climate fell -0.8 to 85.7, weaker than expectations of 86.0.
ECB Chief Economist Lane said the ECB "will have to gradually reduce interest rates" with services inflation still elevated.
ECB Governing Council member Kazaks said, "My conviction is that looking at what's happening at the moment in the European economy, there has to follow another interest rate cut in December."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 33% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Monday fell by -0.44%. Monday’s weaker dollar sparked some short covering in the yen. Also, lower T-note yields on Monday were supportive of the yen. The yen also has carryover support from last Friday when Japan’s National Oct core CPI rose more than expected at the fastest pace in 6 months, which may push the BOJ to raise interest rates at next month’s policy meeting.
The Japan Sep leading index CI was revised downward by -0.3 to 109.1 from the previously reported 109.4.
December gold (GCZ24) Monday closed down -93.70 (-3.452%), and December silver (SIZ24) closed down -1.099 (-3.51%). Precious metals sold off sharply on Monday, with silver posting a 1-week low. Precious metals retreated Monday after President-elect Trump nominated Scott Bessent for US Treasury Secretary. The nomination of Bessent eases concerns about Trump’s inflationary agenda, as Bessent is a fiscal hawk who will prioritize economic and market stability and lower deficits, which could curb demand for gold as an inflation hedge. Precious metals extended their losses Monday after Axios reported that Israel and Hezbollah had accepted the terms of a ceasefire, which curbed safe-haven demand for precious metals. In addition, a decline in inflation expectations reduced demand for gold as an inflation hedge after the US 10-year breakeven inflation rate fell to a 2-1/2 week low Monday. Finally, Monday’s rally in the S&P 500 to a new record high curbed safe-haven demand for precious metals.
On Monday, precious metals had some support from a weaker dollar and lower global bond yields. Also, dovish comments Monday from ECB Governing Council member Kazaks boosted demand for gold as a store of value when he said the ECB must cut interest rates next month due to a weakening economy. In addition, the escalation of the Ukraine-Russia conflict supports safe-haven demand for precious metals.
