Fed Rate Cut Bets Surge: Dollar Weakens While Gold and Silver Rally

The dollar index (DXY) dropped 0.35% today as mixed US economic data shifted market expectations sharply toward a December Fed rate cut.

The Data That Spooked the Dollar:

US September retail sales came in at +0.2% m/m (expected +0.4%), marking a soft reading. Core PPI ex-food and energy printed at +2.6% y/y versus the +2.7% forecast. Meanwhile, the Conference Board’s November consumer confidence index plunged to 88.7—a 7-month low and well below the 93.3 consensus.

The bond market reacted immediately. The 10-year Treasury yield fell to 4.002%, a 3.5-week low, crushing the dollar’s interest rate advantage.

Markets Now Pricing 80% Odds for 25bp Cut on Dec 9-10. Fed officials Williams and Waller have both publicly backed a rate cut, adding fuel to the move.

Gold and Silver on Fire:

December COMEX gold jumped +0.77% to a 1-week high, while silver climbed +0.90%. Softer inflation readings—the 10-year breakeven inflation rate hit 2.112%, a 7.25-month low—are removing headwinds for precious metals.

Central bank buying continues to underpin prices. China’s PBOC boosted gold reserves to 74.09 million troy ounces in October (12th consecutive monthly increase), and global central banks purchased 220 MT in Q3, up 28% from Q2.

Currency Moves:

EUR/USD rallied +0.50% on the softer dollar and positive Eurozone auto sales data (+5.8% y/y). USD/JPY fell 0.57% as Japanese officials signaled potential FX intervention to support the yen.

The Caveat: Recent gold liquidation and softening geopolitical tensions (Ukraine peace talks) could cap upside in precious metals despite the Fed tailwind.