Fed Hawks vs Doves: Dollar Treads Water as Rate Cut Odds Jump to 66%

Dollar index hit a 5.5-month peak Friday but lost steam, closing barely in the green at +0.03%. The mixed signals came straight from the Fed itself—Boston’s Susan Collins and Dallas’s Lorie Logan backed holding rates steady, while NY Fed’s John Williams dropped the dovish bomb: rate cuts could come “near term.”

Markets heard that loud and clear. The odds of a December 9-10 rate cut just jumped from 35% to 66% on Williams’s comments alone.

On the data front, US consumer sentiment got an upward revision (+0.7 to 51.0), which normally helps the dollar, but inflation expectations cooled unexpectedly—1-year expectations fell to 4.5% from 4.7%, 5-10 year dropped to 3.4% from 3.6%. Manufacturing PMI came in slightly soft at 51.9 vs expected 52.0.

EUR/USD: Down -0.15%, hit a 2-week low as Eurozone manufacturing contracted to a 5-month low (PMI 49.7 vs expected 50.1). The ECB’s de Guindos tried to support the euro with hawkish vibes (“rates are appropriate”), but weak factory data talks louder.

USD/JPY: Dropped -0.67% as the yen bounced back. Japan’s Finance Minister Katayama warned about “disorderly FX moves” and didn’t rule out intervention. Japanese exports beat expectations (+3.6% y/y vs +1.1% expected), import surprise was positive too (+0.7% vs -1.0% expected). BOJ rate hike odds still sitting at just 22% for December 19.

Gold & Silver: Mixed bag. Gold +0.48%, silver -0.77% to 2-week lows. The dovish Fed comments boosted safe-haven demand, but a stronger dollar and easing inflation expectations (10-year breakeven fell to 2.239%, a 6.5-month low) worked against precious metals. The silver slide also reflects industrial demand concerns from weak manufacturing globally.

One bright spot for gold: China’s PBOC just hit a 12-month streak of reserve increases, now at 74.09M oz. Global central banks bought 220 MT in Q3, up 28% from Q2—steady accumulation is supporting the floor.