Fed Rate Cut Bets Trigger Dollar Selloff, Gold Rallies to 1-Week Peak

The dollar is under pressure today as softer-than-expected US economic data fuels speculation about a December rate cut. DXY dropped 0.35% as September retail sales came in at just +0.2% m/m (vs +0.4% expected), while core PPI disappointed at +2.6% y/y (vs +2.7% forecast). Markets are now pricing in an 80% probability of a 25bp Fed cut on December 9-10.

The real kicker? Consumer confidence cratered to a 7-month low of 88.7, missing expectations by nearly 5 points. Combined with the 10-year Treasury yield sliding to 4.002% (3.5-week low), bond markets are clearly pricing in an easing cycle.

Currency moves: EUR/USD jumped +0.50% as the weaker dollar lifted the euro, while peace deal optimism on Ukraine added fuel. USD/JPY slipped 0.57% as yen bulls positioned ahead of potential BOJ intervention.

Gold’s moment: December gold surged +0.77% to a 1-week high, with silver climbing +0.90%. Safe-haven flows are back in play—central banks continue flexing, with China’s PBOC holdings hitting 74.09 million ounces (12th straight monthly increase). Global central banks bought 220 MT in Q3, up 28% from Q2.

Headwind? Ukraine peace talks could curb safe-haven demand. Breakeven inflation rates also fell to 7.25-month lows at 2.112%, cooling gold’s inflation-hedge narrative.

Bottom line: The economic slowdown narrative is building. If the Fed actually cuts in December, expect more dollar weakness and precious metals strength—but geopolitical uncertainty remains the wildcard.