The dollar index (DXY00) rose +0.02% on Friday. The dollar rose slightly on Friday as hawkish comments from the Fed boosted Treasury yields. Chicago Fed President Austan Goolsbee said that, given higher inflation, the most prudent course would have been for the Fed to wait for more information before cutting rates. Separately, Kansas City Fed President Jeff Schmid and Cleveland Fed President Beth Hammack said they preferred to maintain “modestly restrictive” policy because inflation remains too high and the economy continues to show momentum. Additionally, low inventories on Friday spurred some liquidity demand for the dollar.
The dollar’s gains were limited as the Fed increased liquidity in the financial system and began buying $40 billion a month in Treasuries starting Friday. Additionally, dovish comments from Philadelphia Fed President Anna Paulson were pessimistic on the dollar, as she said she was more concerned about the labor market than inflation.
The dollar has also been weakened recently by concerns that President Trump intends to appoint a dovish Fed chairman, which would be bearish for the dollar. Mr. Trump ultimately said he would announce his selection for the new Fed chairman in early 2026. Bloomberg reported last week that National Economic Council Director Kevin Hassett would be the most likely choice for the next Fed chairman, seen by markets as the most dovish candidate.
Chicago Fed President Austan Goolsbee, who voted Wednesday against a Fed rate cut, said: “Given that inflation has been above our target for 4.5 years, progress on this area has been stalled for several months, and almost every business person and consumer we spoke with identified prices as a major concern, I thought the most prudent course would have been to wait for more information.”
Kansas City Fed President Jeff Schmid said Wednesday that he disagrees with the FOMC’s decision to cut interest rates and prefers to maintain a “moderately restrictive” policy as inflation remains too high and the economy continues to show momentum.
Cleveland Fed President Beth Hammack said, “I would prefer that the Fed take a slightly more restrictive stance to help continue to put pressure” on the inflation aspect of its mandate.
Philadelphia Fed President Anna Paulson said: “On net, I’m still a little more concerned about the weak labor market than I am about the upside risks to inflation. »
Markets are pricing in a 24% chance that the FOMC will reduce the federal funds target range by 25 bps at the January 27-28 FOMC meeting.
EUR/USD (^EURUSD) rose +0.06% on Friday. The euro recovered from early losses on Friday and posted modest gains due to divergent central bank policies, with the Fed set to continue cutting interest rates in 2026 while the ECB appears to have finished its rate-cutting campaign. The strengthening of the dollar on Friday limited the rise of the euro.
Swaps estimate the probability of a -25 basis point rate cut by the ECB at the December 18 policy meeting as 0%.
USD/JPY (^USDJPY) rose +0.13% on Friday. The yen was under pressure on Friday from a stronger dollar. Additionally, Friday’s rally in the Nikkei stock index to a 4-week high dampened safe-haven demand for the yen. The yen added to its losses on Friday as Treasury yields rose. Friday’s upward revision to Japan’s October industrial production supported the yen. Additionally, expectations that the BoJ will raise interest rates by +25bps at next week’s policy meeting support the yen.
Japanese industrial production for October was revised upwards by +0.1 to 1.5% m/m from the +1.4% m/m previously reported.
Markets anticipate a 91% probability of a BoJ rate hike at the next policy meeting on December 19.
February COMEX gold (GCG26) closed Friday up +15.30 (+0.35%) and March COMEX silver (SIH26) closed down -2.585 (-4.00%).
Gold and silver prices settled mixed on Friday, with gold posting a 7-week high and March silver falling from a contract high. Additionally, the nearest silver futures (Z25) posted an all-time high of $63.93 per troy ounce.
Gold prices fell from their highs on Friday, and silver gave up initial gains and sold off sharply amid prolonged liquidation pressure driven by a stronger dollar and higher Treasury yields. Additionally, hawkish comments from the Fed on Friday were negative for precious metals after Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid, who voted against a Fed rate cut on Wednesday, said they supported “moderately restrictive” monetary policy because inflation remains too high. Separately, Cleveland Fed President Beth Hammack said she would prefer “a slightly more restrictive stance” on Fed policy.
Precious metals have also been receiving support since Wednesday, when the Fed announced it would increase liquidity in the financial system by purchasing $40 billion of Treasuries per month, fueling demand for precious metals as a store of value. Additionally, dovish comments Friday from Philadelphia Fed President Anna Paulson supported precious metals as a store of value as she said she was more concerned about the U.S. job market than inflation. Additionally, precious metals benefit from safe-haven demand linked to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East and Venezuela. Finally, precious metals are supported by concerns that the Fed will pursue a looser monetary policy in 2026, as President Trump intends to appoint a dovish Fed chairman.
Strong central bank demand for gold is supporting prices, following the recent announcement that bullion held in Chinese PBOC reserves increased by +30,000 ounces to 74.1 million troy ounces in November, the thirteenth consecutive month that the PBOC has increased its gold reserves. Additionally, the World Gold Council recently reported that global central banks purchased 220 tonnes of gold in the third quarter, an increase of +28% from the second quarter.
Silver is receiving support on concerns over tightening Chinese silver inventories. Silver stocks in warehouses linked to the Shanghai Futures Exchange fell on November 21 to 519,000 kilograms, the lowest level in 10 years.
Since hitting record highs in mid-October, long-term liquidation pressures have weighed on precious metals prices, with ETF holdings recently falling after hitting a 3-year high on October 21. However, fund demand for silver rebounded, as long holdings in silver ETFs hit a 3.25-year high on Thursday.
As of the date of publication, Rich Asplund did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. This article was originally published on Barchart.com
