Dollar Index Falls to 1.5-Week Low
The dollar index (DXY00) fell to a 1.5-week low on Tuesday, finishing down by 0.16%. This decline was largely due to signs of a weakening US labor market, as a report from ADP showed that US private employers shed more jobs than they created in the four weeks ending October 25. Additionally, the US October NFIB small business optimism index declined to a 6-month low, which was also bearish for the dollar.
US Labor Market Weakness Weighs on Dollar
The dollar is under pressure due to the weakening labor market, which may prompt the Fed to keep cutting interest rates. The US Oct NFIB small business optimism index fell 0.6 to a 6-month low of 98.2, weaker than expectations of 98.3. ADP reported that for the four weeks ending October 25, US private employers shed an average of 11,250 jobs per week, suggesting a net loss of jobs and a weakening labor market. The markets are discounting a 67% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on December 9-10.
EUR/USD Climbs to 1.5-Week High
EUR/USD climbed to a 1.5-week high on Tuesday, finishing up by 0.26%. The euro was supported by a weaker dollar and comments from ECB Executive Board member Elderson and ECB Governing Council member Kocher, who said the current interest rate level is appropriate. However, the unexpected decline in the German November ZEW survey expectations of economic growth was negative for the euro. Central bank divergence is supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.
USD/JPY Falls
USD/JPY fell by 0.03% on Tuesday. The yen recovered from an 8.75-month low against the dollar and moved slightly higher after the dollar retreated on some negative US labor market news. The larger-than-expected increase in the Japan October Eco Watchers Outlook Survey to a 2.25-year high was bullish for the yen. The yen added to its gains as T-note prices rose.
Precious Metals
December COMEX gold (GCZ25) closed down 0.14%, and December COMEX silver (SIZ25) closed up 0.86%. Precious metals settled mixed, with gold falling back from a 2-week high and silver posting a 3-week high. The fall in the dollar index to a 1.5-week low is bullish for metals prices. Precious metals have support on speculation that the end of the US government shutdown will allow the release of economic reports showing the economy is weakening, which could prompt the Fed to keep cutting interest rates.
Conclusion
In conclusion, the dollar index fell to a 1.5-week low due to signs of a weakening US labor market and the potential for the Fed to cut interest rates. The euro climbed to a 1.5-week high, supported by a weaker dollar and comments from ECB officials. The yen recovered from an 8.75-month low against the dollar, and precious metals settled mixed. The ongoing US government shutdown, uncertainty over US tariffs, and central bank buying continue to provide underlying support for precious metals. As the US government shutdown nears its end, the release of economic reports may show a weakening US economy, which could prompt the Fed to keep cutting interest rates, providing further support for precious metals.
