The dollar index (DXY00) took a bit of a tumble on Thursday, down by 0.14%. Concerns over a potential US government shutdown and heightened US-Iran tensions took a toll on the dollar. Additionally, a more-than-anticipated rise in the November trade deficit didn’t do it any favors.
The US ended November with a trade deficit of -$56.8 billion, a hefty figure given the expectations of -$44.0 billion. It’s the most significant deficit leap in four months.
What gave the dollar a slight lift on Thursday was some short covering. This came amidst signs of an agreement to keep the government up and running. Senate Majority Leader Thune spoke of a deal-in-the-making, giving temporary funding to the Department of Homeland Security. Meanwhile, other agencies might see funds extended until September 30.
The labour market added a bit of cheer, with US weekly initial unemployment claims dropping by 1,000 to settle at 209,000. It paints a somewhat weaker picture than the anticipated 205,000. Continuing claims, however, fell by 38,000 to a six-month low of 1.827 million, a stronger outlook than the expected 1.850 million.
There’s ongoing chatter about the Fed losing its grip on independence. The budget deficit is a growing concern too, not to mention the escalating political divisions. And let’s not forget the whispers of possible coordinated FX intervention. Speculation is swirling that the US might partner with Japan to bolster the yen, aligning with President Trump’s seemingly supportive stance on a weaker dollar to boost exports.
Across the pond, EUR/USD (^EURUSD) saw a slight uptick of 0.04% on Thursday. The euro benefitted from the dollar’s wobble. Notable news includes the Eurozone’s January economic confidence indicator rising by 2.2 to a three-year high of 99.4, exceeding expectations of 97.1. It wasn’t all rosy, as the Eurozone December M3 money supply registered a modest rise of 2.8% year-on-year, which was below the 3.0% prediction.
Turning to the land of the rising sun, USD/JPY (^USDJPY) slipped by 0.19% on Thursday. The dollar’s weakness proved bullish for the yen. Japan’s January consumer confidence index unexpectedly climbed to a 1.75-year high of 37.9, comparing favorably against expectations of a dip to 37.1.
Market speculation of a joint US-Japan FX intervention cooled off Wednesday. US Treasury Secretary Bessent was adamant that there’d be no intervention, despite earlier speculations and reported inquiries to banks for dollar/yen quotes. Japan’s Finance Minister Katayama hinted at potential actions aligned with a US-Japan FX agreement.
Gold and silver had a gleaming day. February COMEX gold leaped up by $14.80 (+0.28%), while March COMEX silver marked a rise of $0.895 (+0.79%). The weaker dollar, alongside US-Iran tensions, buoyed these metals. Gold posted new record highs at $5,586.20 an ounce, while silver surged to an all-time high of $120.07 per troy ounce.
Precious metals are steadfast in their appeal, with increased safe-haven demand against a backdrop of geopolitical tensions in Iran and Ukraine. Economic uncertainties contribute as well. Concerns persist over the Fed’s monetary policy trajectory, with hints of a dovish chair appointment by President Trump. This liquidity surge is swelling the demand for metals as stores of value.
Central banks remain avid gold buyers, notably China’s PBOC increasing its holdings for the fourteenth consecutive month. Further insights from the World Gold Council showed global central banks purchased 220 MT of gold in Q3, a 28% increase from Q2.
The tables supporting this are hard to ignore as fund demand for precious metals stays strong. Gold ETFs recently hit a 3.5-year high in holdings, with similar heights for silver ETFs at the end of December.
Rich Asplund at the time of writing had no positions in any securities mentioned. Do take a moment to read the Barchart Disclosure Policy for more insights.
