Dollar Stabilizes as Shutdown Progress Lifts Sentiment (10 - 14 November)

The U.S. dollar index stabilized near 99.6, ending a three-day decline as signs of a deal to end the record-long government shutdown emerged. While the dollar weakened earlier in the week on soft consumer sentiment and rising job cuts, support returned as Senate leaders signaled progress toward a temporary budget. The market remains split on the Fed’s December decision, with 67% odds for a 25bps cut.

Gold rose to $4,050/oz, marking a two-week high as persistent inflation, poor sentiment, and shutdown uncertainty drove safe-haven flows. The U.S. 10-year Treasury yield held near 4.1%, supported by Fed caution and mixed macro signals.

The euro firmed above $1.15, bouncing from three-month lows on dovish Fed bets and ECB stability. The pound hovered near $1.305 after a dovish BoE split vote, while the yen weakened to a nine-month low near 154, pressured by fiscal stimulus expectations under PM Takaichi and limited BoJ tightening appetite.

Market Drivers and Catalysts

• Currencies: Dollar steady on shutdown optimism; euro rebounds on policy divergence; pound wobbles after BoE split; yen weak on stimulus plans
• Commodities: Gold hits 2-week high on safe-haven demand; silver rallies on weak labor data; oil rebounds ahead of OPEC/IEA outlooks
• Fixed Income: U.S. yields hold near 4.1%; gilts fall on rate cut bets; Bunds rise on ECB hold; JGBs steady post-BoJ signals
• Macro Events: U.S. ISM & ADP jobs, BoE rate decision, U.S. PMI readings, shutdown negotiations, OPEC/IEA reports
• Macro Headlines: Shutdown deal gains traction; consumer sentiment slumps; Fed and BoE diverge on outlook; sanctions pressure Russian crude

Fixed Income

• United States: The 10-year Treasury yield held around 4.1%, supported by a hawkish Fed tone despite a recent 25bps rate cut. Chair Powell reiterated that a December cut isn’t guaranteed, causing market odds to fall to 63% from 90%. The Fed also announced the end of its balance sheet runoff in December, with reinvestment of maturing securities into short-term Treasury bills to ease funding strains.
• United Kingdom: The 10-year gilt yield dipped below 4.4%, its lowest since December 2024, after the BoE’s narrow 5–4 vote to keep rates unchanged. Four members unexpectedly voted for a 25bps cut, suggesting increasing internal pressure to ease. With inflation cooling and the OBR expected to lower productivity forecasts, traders now assign a 68% probability of a December rate cut.
• Japan: The 10-year JGB yield hovered near 1.65% after the BoJ left rates at 0.5%. The October Summary of Opinions indicated a potential hike in December or January, contingent on wage and earnings trends. However, the market remains cautious as PM Takaichi's fiscal stimulus agenda and a weaker yen complicate further tightening.
• Germany: The 10-year Bund yield rose to 2.65%, supported by stronger German inflation and hawkish signals from both the ECB and Fed. The ECB kept policy unchanged but emphasized a data-dependent stance. German inflation eased to 2.3%, though the broader economy remains stagnant, dragged by weak exports.

Commodities

Gold prices gained over 1% to $4,050/oz, driven by renewed economic worries and a softer dollar. Weak consumer confidence, elevated inflation, and ongoing shutdown risks reinforced demand for safe-haven assets. Gold is tracking its second consecutive weekly gain, with traders eyeing a potential Fed rate cut in December.

Silver climbed to $48.4/oz, extending its rally on soft U.S. labor data and expectations of easing. Private estimates showed the largest October job loss in 22 years at –153,000, partly due to AI-driven cost reductions. Rate-cut odds for December climbed to 70%, lifting silver alongside safe-haven demand and tightening physical markets.

Currencies

• Dollar: The U.S. dollar index steadied near 99.6, pausing after a sharp decline driven by three-year lows in consumer sentiment and shutdown fallout. Shutdown resolution talks buoyed sentiment later in the week. Traders are evenly split on the Fed’s next move, with 67% odds for a 25bps rate cut in December.
• Euro: The euro climbed above $1.15, rebounding from three-month lows as markets digested policy divergence between the ECB and Fed. ECB officials, including Villeroy de Galhau and de Guindos, reaffirmed a cautious approach, downplaying sub-2% inflation as temporary. In contrast, weak U.S. labor data revived Fed easing expectations.
• Pound: The British pound hovered around $1.305, paring gains after the BoE’s 5–4 vote to keep rates on hold. With four members backing a cut, expectations for early 2026 easing gained traction. The BoE cited cooling inflation and weak demand as risks, reinforcing a data-dependent path ahead of the November budget.
• Yen: The Japanese yen weakened toward 154 per dollar, a nine-month low, as markets braced for fiscal stimulus under PM Takaichi. A draft plan included tax incentives across 17 sectors and urged the BoJ to prioritize growth. While a rate hike remains possible in December or January, markets are skeptical amid political pressure for accommodation.

Macro Calendar Highlights

• U.S. ISM Manufacturing PMI (Oct)
• U.S. ADP Employment Change (Oct)
• S&P Global Services & Manufacturing PMIs (Oct)
• BoE Rate Decision (Nov)
• Shutdown Negotiation Developments
• OPEC & IEA Oil Market Outlook Reports