The dollar index (DXY00) on Friday fell to a 1-week low and finished down by -0.15%. The dollar moved lower on Friday due to some carryover pressure from Thursday, when a report from Challenger showed US job cuts in October surged by 175% y/y, the most in 22 years, bolstering the outlook for the Fed to keep cutting interest rates. The dollar fell to its lows on Friday after the University of Michigan's US Nov consumer sentiment index fell more than expected to a nearly 3.5-year low.
The dollar is still under pressure from the ongoing US government shutdown. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
Losses in the dollar were limited on Friday amid weakness in stocks, which boosted liquidity demand for the dollar. Also, hawkish comments on Friday from Fed Vice Chair Philip Jefferson were supportive of the dollar when he said the Fed should proceed slowly with any additional rate cuts.
The University of Michigan US Nov consumer sentiment index fell -3.3 to a nearly 3.5-year low of 50.3, weaker than expectations of 53.0.
News on inflation expectations was mixed. The University of Michigan US Nov 1-year inflation expectations unexpectedly increased to +4.7%, above expectations of no change at +4.6%. However, the Nov 5-10 year inflation expectations eased to +3.6%, weaker than expectations of +3.8% y/y.
US Sep consumer credit rose by +$13.093 billion, stronger than expectations of +$10.230 billion.
Fed Vice Chair Philip Jefferson said interest rates continue to have a "somewhat restrictive" effect on the economy and "it makes sense to proceed slowly with rate cuts as we approach the neutral rate."
The markets are discounting a 67% 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) rallied to a 1-week high on Friday and finished up by +0.15%. The euro moved higher on Friday due to a weaker dollar. Also, better-than-expected German trade news was supportive for the euro after German Sep exports and imports rose more than expected.
Central bank divergence is 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.
German trade news was better than expected as German Sep exports rose +1.4% m/m, stronger than expectations of +0.5% m/m and the largest increase in 10 months. Also, Sep imports rose +3.1% m/m, stronger than expectations of +0.5% m/m and the biggest increase in 8 months.
Swaps are pricing in a 4% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Friday rose by +0.25%. The yen fell from a 1-week high against the dollar on Friday and moved lower after Japanese economic news showed that household spending rose less than expected in September. Higher T-note yields on Friday also weighed on the yen.
The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike. The markets are discounting a 49% chance of a BOJ rate hike at the next policy meeting on December 19.
Japan Sep household spending rose +1.8% y/y, weaker than expectations of +2.5% y/y.
December COMEX gold (GCZ25) on Friday closed up +18.80 (+0.47%), and December COMEX silver (SIZ25) closed up +0.193 (+0.40%).
Precious metals settled higher on Friday amid a weaker dollar, as the dollar index fell to a 1-week low. Also, Friday's slide in equity markets boosted some safe-haven demand for precious metals. In addition, strong central bank demand for gold is supportive of prices, following China's PBOC reporting that bullion held in its reserves rose to 74.09 million troy ounces in October, the twelfth consecutive month the PBOC has boosted its gold reserves. Last Thursday, the World Gold Council reported that global central banks purchased 220 MT of gold in Q3, up 28% from Q2.
Precious metals continue to have some underlying safe-haven demand amid the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed's independence.
Gains in precious metals were limited on Friday following hawkish comments from Fed Vice Chair Philip Jefferson, who said the Fed should proceed slowly with additional rate cuts as rates near a neutral level. Demand concerns for industrial metals are also weighing on silver prices after the October Chinese trade data came in weaker than expected.
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.
Chinese trade news was weaker than expected, a negative factor for economic growth and industrial metals demand. China Oct exports unexpectedly fell -1.1% y/y, versus expectations of +2.9% y/y and the biggest decline in 8 months. Also, Oct imports rose +1.0% y/y, weaker than expectations of +2.7% y/y.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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