The dollar index (DXY00) today is up by +0.05%.  The dollar is moving higher today due to weakness in the euro and yen, which both fell to 1.5-week lows against the dollar.  Also, higher T-note yields today have strengthened the dollar's interest rate differentials.  Gains in stocks today have diminished liquidity demand for the dollar. 

The US Dec S&P manufacturing PMI was kept unrevised at 51.8, right on expectations.

The markets are discounting the odds at 15% for a -25 bp rate cut at the FOMC's next meeting on January 27-28.

The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026. 

The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills in mid-December.  The dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar.  Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026.  Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.

EUR/USD (^EURUSD) dropped to a 1.5-week low today and is down by -0.10%.  The dollar's strength today is undercutting the euro.  Also, today's downward revision to the Eurozone Dec S&P manufacturing PMI and larger-than-expected increase in Nov M3 money supply are bearish for the euro.

The Eurozone Dec S&P manufacturing PMI was revised downward by -0.4 to 48.4 from the previously reported 49.2.

The Eurozone Nov M3 money supply rose +3.0% y/y stronger than expectations of +2.7% y/y and the highest in four months.

Swaps are pricing in a 0% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.

USD/JPY (^USDJPY) today is up by +0.03%.  The yen slid to a 1.5-week low against the dollar today amid dollar strength.  Also, higher T-note yields today are undercutting the yen.  Trading activity in the yen is below normal as markets in Japan are closed for the New Year's Day holidays.

The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on January 23.

February COMEX gold (GCG26) today is up +17.60 (+0.41%), and March COMEX silver (SIH26) is up +2.667 (+3.78%). 

Gold and silver prices are moving higher today amid safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela. Also, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair.  In addition, an increase in liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC's December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.

Today's rally in the dollar index to a 1.5-week high is bearish for precious metals.  Also, higher global bond yields today are negative for precious metals.  In addition, today's stock market rally has reduced safe-haven demand for precious metals. Finally, precious metals have a negative carryover from Wednesday when the CME announced it was raising margins on precious metals for the second time in a week.  The higher margins force traders to put up more cash to keep their positions open, which prompts some traders to liquidate their positions, depressing prices.

Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China's PBOC reserves rose by +30,000 ounces to 74.1 million troy ounces in November, the thirteenth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported that global central banks purchased 220 MT of gold in Q3, up +28% from Q2. 

Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.25-year high on Tuesday.  Also, long holdings in silver ETFs rose to a 3.5-year high last Tuesday.