Why the Dollar is Outperforming Right Now: A Quick Breakdown

The greenback just hit a 1.5-week peak, climbing +0.39% as traders digest a mixed bag of signals. Here’s what’s actually moving markets:

The Yen Story

Japan’s currency tanked to a 9.75-month low against the dollar—not because of Fed strength, but because of Tokyo’s own pivot. A key advisor to PM Takaichi hinted the BOJ won’t hike rates before March, while simultaneously the government plans a massive 20 trillion yen (~$129B) stimulus package. That’s huge new debt on top of existing obligations, and markets are pricing in significant currency weakness ahead.

US Trade Comes in Hot

The August trade deficit surprised to the upside, shrinking to -$59.6B versus expectations of -$60.4B. Narrower deficits typically support the dollar, and this data gave the greenback an extra bid today.

Gold & Silver React (But With Nuance)

Precious metals rallied hard—gold up +1.55%, silver +3.03%—despite dollar strength. The play here is geopolitical hedging + central bank buying, not currency weakness. China’s PBOC reserves hit 74.09M troy oz in October (12 consecutive months of buying), and global central banks scooped up 220 MT in Q3 alone. That underlying bid is real.

The catch? Reduced odds of a Fed December cut (now 47% vs 70% earlier) are weighing on sentiment.

What’s Priced In

• Fed: 47% probability of -25bp in December
• BOJ: Only 15% chance of a hike on Dec 19
• ECB: 4% chance of a cut on Dec 18

Central bank divergence is the story. The Fed staying hawkish relative to peers = dollar strength. Meanwhile, EUR/USD slipped -0.23%, and mortgage apps fell -5.2% week-over-week as the 30-year rate ticked up to 6.37%.

Bottom line: This isn’t a dollar bull run—it’s a Japanese yen collapse disguised as dollar strength, against a backdrop of uncertain Fed policy and persistent geopolitical risk.