The dollar index (DXY00) on Wednesday rose by +0.18%. The dollar recovered from early losses on Wednesday and moved higher after President Trump said that he would refrain from imposing tariffs on goods from European nations that oppose his effort to take possession of Greenland, citing a "framework of a future deal" regarding the island.
The dollar initially moved lower on Wednesday amid concerns that President Trump would impose higher tariffs on several European countries if they didn't allow him to acquire Greenland. The dollar was also under pressure after the US Dec pending home sales posted their biggest decline in 5.5 years.
US Dec pending home sales fell -9.3% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 5.5 years.
US Oct construction spending rose +0.5% m/m, stronger than expectations of +0.1% m/m.
President Trump said Wednesday that he would refrain from imposing tariffs on goods from European nations that oppose his effort to take possession of Greenland, citing a "framework of a future deal" regarding the island. Mr. Trump said, "Based upon a very productive meeting that I have had with the Secretary General of NATO, Mark Rutte, we have formed the framework of a future deal with respect to Greenland and, in fact, the entire Arctic Region."
The markets are discounting the odds at 5% 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. Last Friday, Mr. Trump said that he would announce his selection for the new Fed Chair within the next few weeks.
EUR/USD (^EURUSD) on Wednesday fell by -0.36%. The euro retreated on Wednesday as the dollar rallied after President Trump said he would refrain from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland. The euro garnered early support Wednesday on comments from ECB President Lagarde, who said additional tariffs from US President Trump would have only a "minor" impact on inflation in Europe.
ECB President Lagarde said another volley of tariffs from US President Trump would have only a "minor" impact on inflation in Europe. She added that what is more important than the tariffs themselves is the rising uncertainty caused by the tariff threats.
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) on Wednesday rose by +0.18%. The yen gave up early gains today and turned lower after President Trump turned down the harsh rhetoric over Greenland, which curbed safe-haven demand for the yen. The yen initially moved higher on Wednesday after the Nikkei Stock Index fell to a 1.5-week low, prompting some safe-haven buying of the yen. Also, lower T-note yields on Wednesday were supportive of the yen.
The yen also has a negative carryover from Tuesday due to concerns about widening deficits, when Bloomberg reported that Japanese Prime Minister Sanae Takaichi promised a temporary sales tax cut on food if she wins a fresh mandate for her new coalition.
The yen has been under pressure since last Monday's Yomiuri report that said Japanese Prime Minister Takaichi may dissolve the lower house of parliament at the start of the next parliamentary session on Friday and call a snap election on February 8 or February 15. The yen fell to a 1.5-year low against the dollar last Wednesday due to concerns that Takaichi's expansionary fiscal policy will persist and that the long-term inflation outlook will rise if the ruling LDP party secures a majority in a snap election.
The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on January 23.
February COMEX gold (GCG26) on Wednesday closed up +71.70 (+1.50%), and March COMEX silver (SIH26) closed down -1.999 (-2.11%).
Gold and silver prices are mixed today, with Feb gold up sharply at a new contract high. Also, nearest-futures gold (GCF26) posed a new record high of $4,865.80 an ounce.
The Greenland crisis has prompted safe-haven buying of precious metals, as President Trump threatens tariffs on some European nations if they don't allow the US to buy Greenland. Also, concerns that Japan's expansionary fiscal policies will lead to soaring deficits are boosting demand for precious metals as a store of value. Gold prices fell from their best level on Wednesday, and silver turned sharply lower after the dollar index recovered from early losses and moved higher.
Gold prices dropped by more than $50 an ounce from their Wednesday afternoon closing level late Wednesday afternoon, when President Trump said he would refrain from imposing tariffs on goods from European nations that oppose his effort to take possession of Greenland, citing a "framework of a future deal" regarding the island.
Precious metals have ongoing support amid safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, 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, increased 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.
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 74.15 million troy ounces in December, the fourteenth 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 Monday. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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