Dollar Dips as Markets React to Trump’s Treasury Pick
Economic Indicators Weigh on Dollar Value
The dollar index (DXY00) dropped by -0.70% on Monday. A significant factor in this decline was President-elect Trump’s nomination of Scott Bessent as the new US Treasury Secretary. Bessent is known for his conservative fiscal views, advocating for reduced government spending and a more measured approach to tariffs, which has been interpreted as detrimental to the dollar’s strength. Moreover, his nomination has eased worries surrounding Trump’s potentially inflationary policies, suggesting a more cautious path ahead. The dollar’s slide continued after the release of US economic data, which showed the October Chicago Fed national activity index fell to a 9-month low, while the November Dallas Fed manufacturing outlook also disappointed.
The US October Chicago Fed national activity index decreased by -0.13, landing at -0.40, which was worse than the expected no change at -0.28.
For November, the Dallas Fed manufacturing outlook rose by +0.3 to -2.7, but this still fell short of the anticipated -1.8.
As a result, markets are reflecting a 52% probability of a -25 basis point rate cut at the upcoming FOMC meeting scheduled for December 17-18.
Euro Gains Amid Hawkish ECB Signals
The EUR/USD (^EURUSD) pair climbed by +0.84% on Monday. The dollar’s downturn prompted some short covering in the euro. Additionally, gains were bolstered by comments from ECB Chief Economist Lane, who indicated that high service inflation might necessitate gradual interest rate reductions from the ECB. His statements reduced the likelihood of a 50 basis point rate cut next month from 48% to 33%.
Negative economic news tempered the euro’s gains. The German November IFO business confidence index fell by -0.8 to 85.7, which was below the expectation of 86.0.
In tandem, ECB Governing Council member Kazaks declared, “The current state of the European economy suggests that we will likely see another interest rate cut in December.”
Swaps indicate a 100% chance for a -25 basis point cut at the ECB’s December 12 meeting, with a 33% chance for a -50 basis point cut.
Yen Finds Support as US Dollar Weakens
The USD/JPY (^USDJPY) pair declined by -0.44% on Monday. Contributing to this move were lower US Treasury yields and a weaker dollar, both of which encouraged short covering in the yen. The yen also benefited from last Friday’s report showing Japan’s October core CPI rising more than expected, the fastest increase in 6 months, pointing towards potential interest rate hikes from the Bank of Japan in the near future.
Additionally, the Japan September leading index CI was revised downward by -0.3 to 109.1 from the prior reading of 109.4.
Precious Metals Face Declines Amid Market Shifts
December gold (GCZ24) closed down -93.70 (-3.452%) on Monday, while December silver (SIZ24) fell by -1.099 (-3.51%). The sharp drop in precious metals was linked to market reactions after Bessent’s nomination signaled decreased inflation fears. Investors often flock to gold as a protection against inflation, but Bessent’s stance foreshadows a focus on economic stability, which may lessen gold’s allure.
Further exacerbating the decline, Axios reported that Israel and Hezbollah had agreed to ceasefire terms, diminishing safe-haven demand for precious metals. A drop in inflation expectations was also noted, reflected in the US 10-year breakeven inflation rate, which fell to a 2.5-week low on Monday. The S&P 500’s rally to a new record high weakened the case for safe-haven investments in gold and silver.
While precious metals found some support from the weaker dollar and declining global bond yields, comments from ECB Governing Council member Kazaks regarding necessary rate cuts next month stirred increased demand for gold as a safe store of value. Meanwhile, tensions from the ongoing Ukraine-Russia conflict continue to provide underlying support for safe-haven assets.
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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
