The US Dollar Index Fell by -0.03% on Monday as a Group of Senate Democrats Voted with Republicans to Advance a Bill to Reopen the Government, Sparking Optimism that the Shutdown is Nearing an End

Fed Officials Sounded Hawkish Notes, Limiting Dollar Losses

• On Monday, losses in the dollar were limited after St. Louis Fed President Alberto Musalem said he expects the US economy to bounce back next quarter and there’s limited room for additional Fed rate cuts.

• Higher T-note yields on Monday strengthened the dollar’s interest rate differentials and are supportive of the dollar.

The FOMC is Likely to Cut the Fed Funds Target Range by 25 bp at the Next Meeting

Euro Falls by -0.03% as Investor Confidence Index Unexpectedly Declined

• The EUR/USD (^EURUSD) on Monday fell by -0.03%.
  The euro posted modest losses on Monday after the Eurozone Nov Sentix investor confidence index unexpectedly declined.

• Central bank divergence is supportive of the euro, with the ECB seen as largely finished with its rate-cut cycle, while the Fed is expected to cut rates several more times by the end of 2026.

Swaps are Pricing in a 4% Chance of a -25 bp Rate Cut by the ECB at the December Policy Meeting

• The Eurozone Nov Sentix investor confidence index unexpectedly fell -2.0 to -7.4, weaker than expectations of an increase to -4.0.

• Swaps are pricing in a 4% chance of a -25 bp rate cut by the ECB at the December 18 policy meeting.

Japan Economy is Expected to Rebound and Interest Rates Will Remain Low

The USD/JPY (^USDJPY) on Monday rose by +0.39%.

• The yen was under pressure on Monday amid signs that Japanese Prime Minister Takaichi will pursue a more expansionary fiscal policy,
  after she said she would drop an annual budget-balancing goal.

• Higher T-note yields on Monday weighed on the yen.

• On the positive side for the yen, the Japan Sep leading index CI rose more than expected to an 8-month high.

The markets are discounting a 49% chance of a BOJ rate hike at the next policy meeting on December 19.

Precious Metals Prices Rise Amid Speculation of a Weakening US Economy

Precious metals rallied sharply higher on Monday, with gold and silver posting significant gains.

• Gold posted a 2-week high, climbing to +112.20 (+2.80%) compared to the previous day’s close.
  Silver climbed to a 2.5-week high at +2.168 (+4.50%).

Precious metals rose amid speculation that the end of the US government shutdown will allow the release of economic reports showing the economy is weakening, which could prompt the Fed to keep cutting interest rates.

• Dollar weakness on Monday was also bullish for metals.
  Precious metals prices are expected to remain strong due to safe-haven demand amid the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, and political pressure on the Fed’s independence.

Conclusion

The dollar index fell by -0.03% due to growing optimism for a quick resolution to the US government shutdown. However, losses in the dollar were limited after St. Louis Fed President Alberto Musalem said he expects the US economy to bounce back next quarter and there’s limited room for additional Fed rate cuts.

• The FOMC meeting on December 9-10 seems likely to see them cut interest rates again by another 25 bp, as markets are discounting a 62% chance of this happening.