The US dollar strengthened slightly, and the Fed's interest rate cut expectations have become a key variable.

The US Dollar Index rose slightly by 0.06% today, with the weak yen being a major driver. As the yen struggles to hold onto last Friday's 10-month low, the dollar gains support. However, dovish remarks from Fed officials have put a brake on the dollar's rise—Federal Reserve Board of Governors member Christopher Waller expressed support for a rate cut in December. Additionally, the strong performance of the stock market has weakened the safe-haven demand for the dollar, limiting its upside potential.

How does the market view interest rate cuts?

Waller's main point is: due to the weak labor market, he supports a rate cut in December, after which he will shift to a gradual assessment model. Traders are now pricing in a 70% probability of a 25 basis point rate cut at the FOMC meeting on December 9-10.

Euro gently rebounds, but German economic data douses cold water

The Euro/USD rose by 0.08% today. The rise in the Euro is attributed to positive signals regarding peace negotiations in Ukraine — NATO Secretary General Jens Stoltenberg stated that a peace agreement is expected to be reached, as Russia is in a “bad situation,” with stagnant progress on the battlefield and a monthly troop loss of 20,000. However, Germany's IFO Business Climate Index unexpectedly fell in November, dropping from an expected 88.5 to 88.1, dampening the Euro's upward momentum. The probability of the European Central Bank cutting interest rates on December 18 is only 2%.

Yen under pressure, Japan's stimulus plan as a background factor

The USD/JPY rose 0.38% today. The yen faces concerns over Japan's debt burden. The Japanese government approved a ¥17.7 trillion ($112 billion) stimulus plan last Friday, which exceeds the ¥13.9 trillion plan from former Prime Minister Shigeru Ishiba last year. The yen hovers above last Friday's 10-month low. The decline in U.S. Treasury yields partially offset the yen's drop. Japan is closed for Labor Thanksgiving Day, resulting in thin market trading. The market prices the probability of a rate hike by the Bank of Japan on December 19 at 23%.

Precious Metals: Dovish Push, Safe-Haven Demand Remains

December COMEX gold rose by $8.70 (+0.21%), and silver rose by $0.097 (+0.19%). Waller's dovish remarks sparked demand for safe-haven buying in precious metals — the expectation of interest rate cuts supported gold's appeal as a store of value. However, the initial rise in the stock market in the early session suppressed precious metals, and improved prospects for peace in Ukraine also weakened the demand for safe-haven assets.

The continuous gold purchases by central banks are an important support: China's central bank increased its gold reserves to 74.09 million ounces in October, setting a record for 12 consecutive months of increases. According to the World Gold Council, central banks globally purchased 220 tons of gold in the third quarter, a month-on-month surge of 28%.

It is important to note that precious metals have faced long position liquidation pressure since reaching historical highs in mid-October. Gold and silver ETF holdings have recently retreated after hitting a three-year high on October 21.