Dollar Falls on Stock Strength and Crude Oil Weakness

The dollar index (DXY00) fell by -0.62% on Monday.  Monday's sharp stock rally reduced demand for dollar liquidity.  Also, Monday’s -4% slump in WTI crude oil prices lowered inflation expectations, which could persuade the Fed to loosen monetary policy, a bearish factor for the dollar.

Monday's US economic news supported the dollar as Sep wholesale trade sales rose +2.8% m/m, stronger than expectations of +1.1% m/m and the largest increase in four months.

Hawkish Fed comments on Monday were dollar-supportive. Chicago Fed President Austan Goolsbee said US employment and growth are pretty stable, but inflation is starting to kick up in services, and we've got to come to terms with inflation failure.  Also, Richmond Fed President Tom Barkin said robust demand and stubbornly high inflation mean interest rates will need to go higher, though any rate hikes will need to be done at a careful pace.

The markets are now pricing in an 83% chance of a +25 bp rate hike at the FOMC’s next meeting on December 8-9. 

EUR/USD (^EURUSD) rose by +0.72% on Monday.  The euro moved higher on Monday amid a weaker dollar. Also, better-than-expected Eurozone economic news supported the euro after the Eurozone Nov Sentix investor confidence index came in stronger than expected, and German trade news was stronger than expected.  In addition, Monday’s -4% decline in crude oil prices is supportive for the Eurozone economy and the euro, as Europe imports most of its energy.

The Eurozone Nov Sentix investor confidence index fell -0.3 to 2.4, stronger than expectations of 2.0.

German trade news was better than expected as German Sep exports rose +2.0% m/m, stronger than expectations of +0.5% m/m and the largest increase in 7 months.  Also, Oct imports rose +4.2% m/m, stronger than expectations of +0.5% m/m and the largest increase in nearly 1.75 years.

Hawkish comments over the weekend from ECB President Christine Lagarde were euro-positive when she said, "We now know that inflation numbers will remain high in the quarters to come and the higher they are, and the longer they remain high, the greater the risk to our medium-term target."

The markets are now pricing in an 83% chance of a +25 bp rate hike at the ECB’s next policy meeting on December 17. 

USD/JPY (^USDJPY) fell by -0.43% on Monday.  The yen moved higher on Monay amid a weaker dollar. Also, Monday’s -4% slump in crude oil prices supports Japan’s economy and the yen, as Japan imports more than 90% of its energy.

The Japan Sep leading index CI fell -1.6 to 116.4, weaker than expectations of 116.6.

The market is pricing in a 70% chance of a +25 bp BOJ rate hike at its next meeting on December 18.

December COMEX gold (GCZ26) closed up +39.60 (+0.97%) on Monday, and December COMEX silver (SIZ26) closed up +0.751 (+1.45%).

Precious metals settled higher on Monday, bolstered by a weaker dollar.  Also, Monday’s -4% plunge in crude oil prices lowered inflation expectations and could prompt the world’s central banks to ease their monetary policies, a bullish factor for precious metals.

Precious metals fell from their best levels on Monday after stocks rallied sharply, which curbed safe-haven demand for the metals. Also, hawkish Fed comments on Monday were bearish for precious metals after Chicago Fed President Austan Goolsbee said we're starting to see inflation kicking up in services, and we've got to come to terms with inflation failure.  Also, Richmond Fed President Tom Barkin said robust demand and stubbornly high inflation mean interest rates will need to go higher.

Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4.25-year high on October 21, although those holdings have since backed off.  Long holdings in silver ETFs rose to a 7.75-month high last Tuesday.

Strong central bank demand for gold is supporting gold prices.  World Gold Council data showed cumulative gold purchases by global central banks in Q3 were 321,000 MT, the most since Q4 of 2024.  Also, Sunday’s news showed that bullion held in China's PBOC reserves rose by 830,000 ounces to 78.30 million troy ounces in October, the largest increase in three years and the twenty-fourth consecutive month the PBOC boosted its gold reserves.

On the date of publication, Rich Asplund did not directly have a position 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.