The dollar index (DXY00) on Thursday fell from a 5.5-month high and finished down by -0.04%. The dollar whipsawed lower Thursday after US Sep nonfarm payrolls rose more than expected but the Sep unemployment rate unexpectedly ticked up to a nearly 4-year high, bolstering expectations that the Fed may still cut interest rates at next month's FOMC meeting. Other US economic news on Thursday was mixed for the dollar as weekly jobless claims fell more than expected, the Nov Philadelphia Fed business outlook survey rose less than expected, and Oct existing home sales rose to an 8-month high.
US weekly initial unemployment claims fell by -8,000 to 220,000, showing a stronger labor market than expectations of 227,000. However, weekly continuing claims rose to 1.974 million, the most in four years, and a sign that those currently laid off are finding it challenging to secure new employment.
US Sep nonfarm payrolls rose by +119,000, showing a stronger labor market than expectations of +51,000. The Sep unemployment rate unexpectedly rose by +0.1 to a nearly four-year high of 4.4%, showing a weaker labor market than expectations of no change at 4.3%.
US Sep average hourly earnings remained unchanged from Aug at +3.8% y/y, stronger than expectations of +3.7% y/y.
The US Nov Philadelphia Fed business outlook survey rose +11.1 to -1.7, weaker than expectations of +1.0.
US Oct existing home sales rose +1.2% m/m to an 8-month high of 4.10 million, stronger than expectations of 4.08 million.
Fed comments on Thursday were hawkish and supportive of the dollar. Cleveland Fed President Beth Hammack said, "Lowering interest rates to support the labor market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets." Also, Chicago Fed President Austan Goolsbee said inflation seems stalled, maybe moving up, which makes him uneasy about front-loading too many interest rate cuts. In addition, Fed Governor Michael Barr said, "I am concerned that we're seeing inflation still at around 3%" and that the Fed needs to proceed with caution in considering additional interest rate cuts with inflation above our 2% target.
The markets are discounting a 37% 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 fell by -0.07% and posted a 2-week low. The euro posted modest losses on Thursday from a weaker-than-expected report on the Eurozone Nov consumer confidence. Losses in the euro are limited due to central bank divergence, 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.
The Eurozone Nov consumer confidence index was unchanged at -14.2, below expectations of a rise to -14.0.
German Oct PPI fell -1.8% y/y, weaker than expectations of -1.7% y/y.
ECB Governing Council member Makhlouf said Eurozone interest rates are in a "good place" and that he'd "need to see pretty compelling evidence to move."
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.
USD/JPY (^USDJPY) on Thursday rose by +0.30%. The yen added to this week's losses on Thursday, posting a 10-month low against the dollar. Concerns about Japan's debt burden are weighing on the yen after Bloomberg reported that Japanese Prime Minister Takaichi will unveil a 17.7 trillion yen ($112 billion) stimulus package, higher than the 13.9 trillion yen package released last year by former Prime Minister Ishiba.
Higher Japanese government bond yields are supportive of the yen after the 10-year JGB yield rose to a 17-year high of 1.845% on Thursday. Also, hawkish comments on Thursday from BOJ board member Koeda were supportive of the yen when she said, "Given that real interest rates are currently at significantly low levels, I believe that the BOJ needs to proceed with interest rate normalization."
The markets are discounting an 18% chance of a BOJ rate hike at the next policy meeting on December 19.
December COMEX gold (GCZ25) on Thursday closed down -22.80 (-0.56%), and December COMEX silver (SIZ25) closed down -0.553 (-1.09%).
Gold and silver prices gave up early gains on Thursday and turned lower after hawkish comments from several Fed members dampened expectations for additional rate cuts, sparking a wave of long liquidation in precious metals. Also, easing inflation expectations curbed demand for gold as an inflation hedge, as the 10-year breakeven inflation rate fell to a 6.5-month low Thursday at 2.250%. In addition, precious metals had a negative carryover from Wednesday, when the Bureau of Labor Statistics (BLS) canceled publication of the Oct employment report, which removes key data before next month's FOMC meeting and lowers the chances of a Fed rate cut.
Precious metals prices initially moved higher on Thursday after the US Sep unemployment rate unexpectedly ticked up to a nearly 4-year high and weekly continuing unemployment claims rose to a 4-year high, signaling weakness in the labor market, which is dovish for Fed policy. Precious metals continue to have some underlying safe-haven demand amid uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed's independence.
Strong central bank demand for gold is supportive of prices, following the most recent news that showed bullion held in China's PBOC reserves rose to 74.09 million troy ounces in October, the twelfth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported 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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