The dollar index (DXY00) on Friday rose by +0.02%.  The dollar moved slightly higher on Friday, as hawkish Fed comments boosted T-note yields.  Chicago Fed President Austan Goolsbee said that, given higher inflation, the more prudent course would have been for the Fed to wait for more information before cutting rates.  Also, Kansas City Fed President Jeff Schmid and Cleveland Fed President Beth Hammack said they prefer to keep policy "modestly restrictive" because inflation remains too high and the economy continues to show momentum.  In addition, the weakness in stocks on Friday boosted some liquidity demand for the dollar. 

Gains in the dollar were limited as the Fed boosted liquidity in the financial system and began purchasing $40 billion a month in T-bills effective Friday.  Also, dovish comments from Philadelphia Fed President Anna Paulson were dollar bearish, as she said she's more concerned about the labor market than inflation.

The dollar has also been undercut recently by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar.  Mr. Trump said last that he will announce his selection for the new Fed Chair in early 2026.  Bloomberg reported last week 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.

Chicago Fed President Austan Goolsbee, who voted against a Fed rate cut on Wednesday,  said, "Given that inflation has been above our target for 4.5 years, further progress on it has been stalled for several months, and almost all the business people and consumers we have spoken to identify prices as a main concern, I felt the more prudent course would have been to wait for more information." 

Kansas City Fed President Jeff Schmid said he dissented against the FOMC's decision to cut interest rates on Wednesday and prefers to keep policy "modestly restrictive" because inflation remains too high and the economy continues to show momentum. 

Cleveland Fed President Beth Hammack said, "I would prefer for the Fed to be on a slightly more restrictive stance to help continue to put pressure" on the inflation side of its mandate.

Philadelphia Fed President Anna Paulson said, "On net, I am still a little more concerned about labor market weakness than about upside risks to inflation."

The markets are discounting a 24% chance that the FOMC will cut the fed funds target range by 25 bp at the January 27-28 FOMC meeting.

EUR/USD (^EURUSD) on Friday rose by +0.06%.  The euro recovered from early losses on Friday and posted modest gains due to divergent central bank policies, with the Fed expected to continue cutting interest rates in 2026 while the ECB is seen to have finished its rate-cutting campaign.  The stronger dollar on Friday limited the euro's upside. 

Swaps are pricing in a 0% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.

USD/JPY (^USDJPY) on Friday rose by +0.13%.  The yen was under pressure on Friday from a stronger dollar.  Also, Friday's rally in the Nikkei Stock Index to a 4-week high curbed safe-haven demand for the yen.  The yen added to its losses on Friday as T-note yields rose.  Friday's upward revision to Japan's Oct industrial production was supportive of the yen.  Also, expectations that the BOJ will raise interest rates by +25 bp at next week's policy meeting are supportive of the yen. 

Japan's Oct industrial production was revised upward by +0.1 to 1.5% m/m from the previously reported +1.4% m/m.

The markets are discounting a 91% chance of a BOJ rate hike at the next policy meeting on December 19.

February COMEX gold (GCG26) on Friday closed up +15.30 (+0.35%), and March COMEX silver (SIH26) closed down -2.585 (-4.00%).

Gold and silver prices settled mixed on Friday, with gold posting a 7-week high and Mar silver falling from a contract high.  Also, nearest-futures (Z25) silver posted an all-time high of $63.93 a troy ounce. 

Gold prices fell from their highs on Friday, and silver gave up early gains and sold off sharply amid long liquidation pressures driven by a stronger dollar and higher T-note yields.  Also, hawkish Fed comments on Friday were negative for precious metals after Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid, who voted against a Fed rate cut on Wednesday, said they support a "modestly restrictive" monetary policy because inflation remains too high.  Also, Cleveland Fed President Beth Hammack said she would prefer "a slightly more restrictive stance" on Fed policy.

Precious metals also have carryover support from Wednesday, when the Fed said it would boost liquidity in the financial system by purchasing $40 billion of T-bills per month, which fuels demand for precious metals as a store of value.  Also, dovish comments on Friday from Philadelphia Fed President Anna Paulson were supportive of precious metals as a store of value, as she said she is more concerned about the US labor market than she is about inflation.  In addition, precious metals have safe-haven demand tied to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela.  Finally, 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. 

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. 

Silver has support due to concerns about tight Chinese silver inventories.  Silver inventories in warehouses linked to the Shanghai Futures Exchange on November 21 fell to 519,000 kilograms, the lowest level in 10 years.

Since posting record highs in mid-October, long liquidation pressures have weighed on precious metals prices, as ETF holdings have recently fallen after reaching 3-year highs on October 21.  However, fund demand for silver has rebounded, as long holding in silver ETFs rose to a 3.25-year high on Thursday.

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