The dollar index (DXY00) experienced a slight increase of +0.02% on Friday as hawkish comments from Federal Reserve officials boosted T-note yields. Chicago Fed President Austan Goolsbee expressed his opinion that waiting for more information before cutting rates would have been a more prudent course of action given the current higher inflation rates. Similarly, Kansas City Fed President Jeff Schmid and Cleveland Fed President Beth Hammack advocated for a “modestly restrictive” policy stance to combat persistently high inflation levels and maintain economic momentum. The dollar also saw some support from increased liquidity demand due to weakness in the stock market.
However, the dollar’s gains were limited by the Fed’s decision to inject liquidity into the financial system by purchasing $40 billion in T-bills each month, starting Friday. Additionally, Philadelphia Fed President Anna Paulson’s dovish comments, expressing more concern about the labor market than inflation, weighed on the dollar.
Concerns about President Trump appointing a dovish Fed Chair further undermined the dollar’s strength. Bloomberg reported that National Economic Council Director Kevin Hassett is the frontrunner for the position, perceived by the markets as a dovish candidate. Trump is expected to announce his selection for the new Fed Chair in early 2026.
In the currency markets, the EUR/USD (^EURUSD) pair rose by +0.06% on Friday, recovering from early losses. The euro’s gains were attributed to diverging central bank policies, with the Fed expected to continue cutting interest rates while the ECB has likely concluded its rate-cutting campaign. Despite this, the stronger dollar limited the euro’s upside potential.
USD/JPY (^USDJPY) saw an increase of +0.13% on Friday, driven by a stronger dollar and a rally in the Nikkei Stock Index. The yen faced pressure from rising T-note yields and expectations of a +25 bp rate hike by the Bank of Japan at its upcoming policy meeting on December 19.
In the commodities market, February COMEX gold (GCG26) closed up +0.35%, while March COMEX silver (SIH26) closed down -4.00% on Friday. Gold prices reached a 7-week high, while silver retreated from a contract high as long liquidation pressures, a stronger dollar, and higher T-note yields weighed on precious metals. However, the Fed’s decision to boost liquidity and dovish comments from some Fed officials provided some support to gold and silver prices.
Central bank demand for gold remained strong, with reports of increased bullion holdings in China’s PBOC reserves and global central banks purchasing significant amounts of gold in Q3. Silver prices were supported by concerns over tight inventories in Chinese warehouses.
Despite recent pressures on precious metals prices, fund demand for silver rebounded, with long holdings in silver ETFs reaching a 3.25-year high. Overall, the outlook for precious metals remains positive, supported by central bank demand, geopolitical uncertainties, and expectations of an easier monetary policy in 2026.
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