Dollar Rallies and Gold Slumps on US Price Pressures and Hawkish Fedspeak

The dollar index (DXY00) rallied to a 1.5-week high on Tuesday and finished up by +0.60%.  The dollar moved higher Tuesday after T-note yields jumped when US Oct CPI rose more than expected, a hawkish factor for Fed policy.  Gains in the dollar accelerated Tuesday on hawkish comments from Fed Governor Waller, Dallas Fed President Lorie Logan, and Kansas City Fed President Jeff Schmid, who signaled their support for a Fed rate hike next month.  Dollar gains were limited Tuesday after WTI crude oil prices fell to a 2.5-month low, easing inflation expectations and potentially persuading the Fed to loosen monetary policy, a bearish factor for the dollar.

US Oct CPI rose +0.4% m/m, stronger than expectations of +0.3% m/m.  Oct core CPI rose +0.3% m/m, stronger than expectations of +0.2% m/m.  The Bureau of Labor Statistics did not publish year-over-year data for 2026 CPI because it had no October 2025 data due to the federal government shutdown.

Fed Governor Christopher Waller said he supports a Fed rate hike in December, and warned that if inflation continues to accelerate, he would support a half-percentage-point increase to protect the Fed's credibility.

Dallas Fed President Lorie Logan said, "It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25 bp rate increases."  She added that while the pace of hikes will depend on economic data and financial conditions, "It may be possible to move more rapidly this winter than the FOMC has moved so far this fall." 

Kansas City Fed President Jeff Schmid said current Fed policy is "fairly accommodative" and is supporting the economy rather than restraining it. 

The markets are now pricing in a 100% chance of a +25 bp rate hike at the FOMC’s next meeting on December 8-9. 

EUR/USD (^EURUSD) gave up an overnight advance and fell by -0.55% on Tuesday.  The euro retreated Tuesoday after the stronger-than-expected US Oct CPI report bolstered the outlook for a Fed rate hike next month and sparked a rally in the dollar. 

The euro initially moved higher today on hawkish comments from ECB Governing Council member Martins Kazaks and ECB Chief Economist Philip Lane, who expressed their support for tighter ECB monetary policy. Also, ECB Governing Council member and Bundesbank President Joachim Nagel said that consumer price gains are "too high" and a December rate hike by the ECB is "rather obvious."

ECB Chief Economist Philip Lane said, "If the information set we have in December is exactly the same as the information set today, then I think it would be prudent indeed to hike" interest rates. 

ECB Governing Council member Martins Kazaks said a "hawkish edge" is appropriate for monetary policy, and "so far, it seems that some further tightening from today's perspective would be warranted."

The markets are now pricing in a 92% chance of a +25 bp rate hike at the ECB’s next policy meeting on December 17. 

USD/JPY (^USDJPY) rose by +0.56% on Tuesday.  The yen fell to a 3.5-week low against the dollar on Tuesday from weaker-than-expected Japanese economic news, including Sep household spending and the Oct Eco-watchers outlook survey.  Yen losses accelerated Tuesday after the dollar and T-note yields jumped on the stronger-than-expected US Oct CPI report. On the positive side for the yen was Tuesday’s decline in crude oil prices to a 2.5-month low, which is positive for Japan’s economy and the yen, as Japan imports more than 90% of its energy.

Japan Sep household spending fell -6.8% y/y, weaker than expectations of -3.0% y/y and the biggest decline in 6 years.

The Japan Oct Eco-watchers outlook survey fell -0.9 to 46.5, weaker than expectations of 47.1.

The market is pricing in a 79% chance of a +25 bp BOJ rate hike at its next meeting on December 18.

December COMEX gold (GCZ26) closed down -84.30 (-2.05%) on Tuesday, and December COMEX silver (SIZ26) closed down -1.468 (-2.79%).

Precious metals settled sharply lower on Tuesday after the dollar index rallied to a 1.5-week high.  Also, Tuesday’s stronger-than-expected US Oct CPI report pushed T-note yields higher and boosted the chance of a Fed rate hike next month to 100% from 82% on Monday, a bearish factor for precious metals. 

In addition, hawkish central bank comments weighed on precious metals Tuesday after Fed Governor Waller, Dallas Fed President Lorie Logan, and Kansas City Fed President Jeff Schmid signaled their support for a Fed rate hike next month, while ECB Governing Council members Kazaks and Nagel and ECB Chief Economist Lane signaled their support for tighter ECB monetary policy.

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.  Recent 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.