Dollar Holds Steady Amid Fed Officials’ Restrictive Policy Remarks

The dollar index (DXY00) edged up +0.05%, supported by hawkish remarks from Federal Reserve officials. Chicago Fed President Austan Goolsbee noted that, given elevated inflation, the more prudent approach would have been to await additional information before implementing rate cuts. Similarly, Kansas City Fed President Jeff Schmid expressed a preference for maintaining a “modestly restrictive” policy stance, citing persistently high inflation and ongoing economic momentum. Additionally, equity market weakness contributed to increased liquidity demand for the dollar. However, the greenback’s gains were constrained by the Federal Reserve’s decision to bolster financial system liquidity through monthly purchases of $40 billion in Treasury bills. Philadelphia Fed President Anna Paulson introduced a dovish counterweight, indicating greater concern for the labor market than inflation, which weighed on the currency.

The dollar recently faced pressure over concerns that President Trump intends to appoint a dovish Fed Chair, a scenario viewed as bearish for the currency. Trump stated he would announce his selection for the new Fed Chair in early 2026, with Bloomberg reporting that National Economic Council Director Kevin Hassett is the frontrunner, widely perceived by markets as the most dovish candidate.

Chicago Fed President Austan Goolsbee, who dissented against the Fed’s rate cut on Wednesday, stated, “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 also dissented against the FOMC’s decision to cut interest rates, asserting his preference for a “modestly restrictive” policy due to elevated inflation and economic momentum. Philadelphia Fed President Anna Paulson countered this sentiment, stating, “On net, I am still a little more concerned about labor market weakness than about upside risks to inflation.”

Currently, markets are pricing in a 24% probability of the FOMC reducing the fed funds target range by 25 basis points at the January 27-28 meeting.

The EUR/USD (^EURUSD) declined by -0.03%, with the euro moving slightly lower against the dollar’s strength. The euro’s losses were limited by divergent central bank policies, as the Fed is expected to continue cutting rates in 2026 while the ECB is perceived to have concluded its rate-cutting cycle. Swaps currently price in a 0% chance of a -25 basis point rate cut by the ECB at its December 18 policy meeting.

The USD/JPY (^USDJPY) rose by +0.21%, with the yen pressured by the stronger dollar. A rally in the Nikkei Stock Index to a four-week high also diminished safe-haven demand for the yen. The yen extended its losses as T-note yields increased, though it found some support from an upward revision to Japan’s October industrial production, which was adjusted to +1.5% m/m from the previously reported +1.4% m/m. Expectations that the Bank of Japan will raise interest rates by +25 basis points at its upcoming policy meeting further supported the yen. Markets are currently discounting a 91% chance of a BOJ rate hike at the December 19 meeting.

February COMEX gold (GCG26) advanced by +62.00 (+1.44%), while March COMEX silver (SIH26) rose by +0.043 (+0.07%). Precious metals surged on Thursday, with gold reaching a seven-week high and March silver posting a contract high. Notably, nearest-futures silver (Z25) recorded an all-time high of $63.93 per troy ounce.

Precious metals drew carryover support from the Fed’s commitment to purchase $40 billion in T-bills monthly, which fuels demand for metals as a store of value. Dovish comments from Philadelphia Fed President Anna Paulson also bolstered precious metals, as she emphasized greater concern for the U.S. labor market over inflation. Furthermore, safe-haven demand was driven by uncertainty surrounding U.S. tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela. Additional support came from expectations that the Fed will pursue an easier monetary policy in 2026 due to President Trump’s intended appointment of a dovish Fed Chair. Conversely, hawkish remarks from Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid—both of whom voted against the recent rate cut—were negative for precious metals, as they advocated for a “modestly restrictive” policy due to persistent inflation.

Central bank demand remains a supportive factor for gold prices. Bullion held in China’s PBOC reserves increased by +30,000 ounces to 74.1 million troy ounces in November, marking the thirteenth consecutive month of reserve expansion. The World Gold Council also reported that global central banks purchased 220 MT of gold in Q3, a +28% increase from Q2.

Silver prices received support from concerns regarding tight Chinese inventories. Silver inventories in warehouses linked to the Shanghai Futures Exchange fell to 519,000 kilograms on November 21, the lowest level in a decade.

Since reaching record highs in mid-October, long liquidation pressures have weighed on precious metals, as ETF holdings declined after hitting three-year highs on October 21. However, fund demand for silver has rebounded, with long holdings in silver ETFs rising to a 3.25-year high on Thursday.

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