The dollar index (DXY00) on Thursday fell by -0.49%. The dollar retreated on Thursday after 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. Also, 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 Thursday after stocks fell, which boosted liquidity demand for the dollar. Also, hawkish comments from Chicago Fed President Austan Goolsbee and Cleveland Fed President Beth Hammack were supportive of the dollar when they said they favored no additional Fed rate cuts.
US Oct Challenger job cuts surged +175.3% y/y to 153,074, the largest increase in 7 months and the most for an October in 22 years. Year-to-date job cuts have exceeded 1 million, the most since the pandemic, and US employers have announced the fewest hiring plans since 2011.
Fed comments on Thursday were hawkish and bullish for the dollar. Chicago Fed President Austan Goolsbee said that a lack of inflation data during the government shutdown makes him more uneasy about the Fed's ongoing interest rate cuts. Also, Cleveland Fed President Beth Hammack said, "I remain concerned about high inflation and believe monetary policy should be leaning against it. This argues for a mildly restrictive stance for our policy rate to ensure that inflation returns to 2% in a timely fashion."
The markets are discounting a 70% 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) on Thursday rose by +0.49%. Dollar weakness on Thursday pushed the euro higher. The euro also received support Thursday from upbeat comments by ECB Vice President Guindos, who said the ECB is more optimistic about Eurozone growth. On the negative side for the euro, Eurozone Sep retail sales unexpectedly declined, and German Sep industrial production rose less 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.
Eurozone Sep retail sales unexpectedly fell -0.1% m/m, versus expectations of a +0.2% m/m increase.
German Sep industrial production rose +1.3% m/m, weaker than expectations of +3.0% m/m.
ECB Vice President Guindos said, "The European economy is showing a little bit of resilience, and growth is better than many projected only a couple of quarters ago." He also said that the news on inflation is positive, with gains in service prices "behaving" much better.
Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Thursday fell by -0.66%. The yen moved higher on Thursday amid weakness in the dollar. Also, lower T-note yields on Thursday were supportive of the yen. In addition, Thursday's upward revision to the Japan Oct S&P services PMI is bullish for the yen. On the negative side for the yen, Japan's Sep real cash earnings fell for the ninth consecutive month, a dovish factor for BOJ policy.
The yen has recently been weak due to Japanese political uncertainty and a delayed BOJ rate hike. The markets are discounting a 51% chance of a BOJ rate hike at the next policy meeting on December 19.
The Japan Oct S&P services PMI was revised upward by +0.7 to 53.1 from the previously reported 52.4.
Japan's Sep real cash earnings fell -1.4% y/y, the ninth consecutive month that earnings have declined.
December COMEX gold (GCZ25) on Thursday closed down -1.90 (-0.05%), and December COMEX silver (SIZ25) closed down -0.069 (-0.14%).
Precious metals gave up an early advance on Thursday and posted modest losses. Hawkish Fed comments on Thursday weighed on metals prices after Chicago Fed President Austan Goolsbee said the lack of US inflation data makes him uneasy about additional Fed rate cuts, and after Cleveland Fed President Beth Hammack said she favors keeping policy restrictive to keep inflation down. Demand concerns over industrial metals also weighed on silver prices Thursday after Eurozone Sep retail sales unexpectedly declined and German Sep industrial production rose less than expected.
Precious metals initially moved higher on Thursday due to a weaker dollar. Also, Thursday's report from Challenger, Gray & Christmas, which showed that US companies shed the most jobs in October in 22 years, bolsters the outlook for additional Fed rate cuts and is bullish for precious metals.
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.
Gold prices have carry-over support last Thursday from the World Gold Council's report showing 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.
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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