The dollar index (DXY00) today fell to a new 4-month low and is down -0.61%.
The dollar is being undercut by speculation that the US might coordinate FX intervention with Japan to boost the yen, which would dovetail with Mr. Trump's apparent view that a weak dollar is good for the US as a stimulus to US exports. US authorities reportedly contacted market participants last Friday to check dollar/yen prices, a possible precursor to intervention.
The dollar is also being undercut as foreign investors pull capital from the US due to political risks. The markets remain nervous about Greenland, even though Mr. Trump said last Wednesday that there was a framework agreement for increased US access to Greenland and that he would not invade Greenland by military force.
The dollar is also lower on US political uncertainty after President Trump on Saturday threatened 100% tariffs on US imports from Canada if Canada signs a trade agreement with China. Canada is seeking other trade partners amid President Trump's liberal use of tariffs during this second administration.
The risk of another partial US government shutdown is also weighing on the dollar. Senate Democrats threatened to block a government funding deal over Department of Homeland Security/ICE funding after the ICE shooting of an ICU nurse in Minnesota on Saturday. There could be a partial government shutdown when the current stopgap funding measure expires this Friday.
The dollar has some underlying support from today's US durable goods report, which was mildly stronger than expected. US durable goods orders rose +5.3% m/m, stronger than market expectations of +4.0% and more than reversing Oct's revised -2.1% decline. Nov durable goods orders ex-transportation rose +0.5% m/m, stronger than expectations of +0.3%. Nov capital goods orders ex defense and aircraft, a proxy for capital goods spending, rose +0.7% m/m, stronger than market expectations of +0.3%.
The markets are discounting the odds at 3% for a -25 bp rate cut at this week's FOMC meeting on Tuesday and Wednesday (Jan 27-28).
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
EUR/USD (^EURUSD) is up +0.36% on dollar weakness.
The German Jan IFO Business Climate index was unchanged at 87.6, weaker than expectations for a rise to 88.2. The Jan IFO current assessment index rose +0.1 to 85.7, weaker than expectations for a rise to 86.0. The Jan IFO Expectations index fell -0.2 to 89.5, weaker than expectations for an increase to 90.3.
Swaps are pricing in a 0% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.
USD/JPY (^USDJPY) is down -1.22% today, with the yen continuing to benefit from speculation that US-Japan joint FX intervention may be forthcoming. US authorities reportedly called major banks last Friday to request dollar/yen quotes, a possible precursor to intervention.
As expected, the BOJ last Friday voted 8-1 to keep its overnight call rate steady at 0.75% and said economic risks and price risks are generally balanced.
The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on March 19.
February COMEX gold (GCG26) is up +107.5 (+2.16%), and March COMEX silver (SIH26) is up +10.637 (+10.50%).
Gold and silver prices today soared to new record highs due to dollar weakness and US political uncertainty. Also, silver saw support from today's stronger-than-expected US durable goods orders report, which was bullish for industrial metals demand.
Precious metals have ongoing support amid safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair. In addition, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC's December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.
Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China's PBOC reserves rose by +30,000 ounces to 74.15 million troy ounces in December, the fourteenth 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.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.25-year high last Thursday. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23.
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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