Dollar Dips Amid Concerns Over Labor Market While Precious Metals Gain Ground
Unemployment Claims Send Mixed Signals
The dollar index (DXY00) fell by -0.13% on Thursday, a slight decline during low holiday trading activity. Concerns about the strength of the US labor market emerged with weekly continuing unemployment claims hitting a 3-year high. This unexpected rise tempered the dollar’s performance. Furthermore, the decline in Treasury note yields during the day and a rebound in the stock market also impacted liquidity demand for the dollar.
US Labor Market Shows Contradictory Trends
Recent US labor market data presents a mixed picture. Initial unemployment claims unexpectedly dropped by -1,000 to a one-month low of 219,000, contrary to expectations of an increase to 223,000. In contrast, continuing unemployment claims surged by +46,000 to a 3-year high of 1.910 million, exceeding predictions of 1.881 million. This indicates that it is taking longer for those out of work to find new jobs.
Market Adjustments and Interest Rates
Currently, markets are pricing in a 9% chance of a -25 basis point rate cut during the Federal Reserve’s FOMC meeting on January 28-29.
Euro Gains but Faces ECB Outlook
The EUR/USD (^EURUSD) rose by +0.11% on Thursday, benefitting from the dollar’s weakness. However, gains were slightly limited following comments from ECB Governing Council member Vujcic, suggesting potential future interest rate cuts. Trading was subdued as many European markets were closed for the Christmas and Boxing Day holidays.
ECB Rate Cut Predictions
Swaps indicate a complete 100% probability of a -25 basis point rate cut by the ECB in its upcoming meeting on January 30, with an 8% chance of a more substantial -50 basis point cut.
Yen Pressured by Bank of Japan’s Stance
The USD/JPY (^USDJPY) climbed by +0.38%, reaching a five-month high. The yen has faced mounting pressure due to statements from government officials, who have played down the possibility of immediate rate hikes from the Bank of Japan (BOJ). Last Thursday, the BOJ maintained the overnight call rate at 0.25%, and the yen lost further ground after BOJ Governor Ueda offered no hints about future rate increases.
Precious Metals Positioned Favorably
February gold (GCG25) rose by +18.40 (+0.70%) on Thursday, while March silver (SIH25) increased by +0.106 (+0.35%). Precious metals enjoyed moderate gains, with silver reaching a one-week high. The weaker dollar contributed positively to these markets, and gold’s attractiveness as a safe investment rose after the BOJ’s recent announcements. Additionally, inflation expectations bolstered demand for gold, evidenced by a 1-month high of 2.366% in the 10-year breakeven inflation rate.
Market Dynamics Amid Global Tensions
Precious metals continue to receive safe-haven interest amid global geopolitical risks, particularly following the collapse of the Syrian government and escalating conflicts in Ukraine. Silver prices are also supported by expectations of increased industrial demand from China as reports suggest the country may implement additional stimulus measures in 2025. However, a recent stock market rebound limited significant growth in precious metals.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
