Dollar Rallies and Precious Metals Surge on Geopolitical Risks

Core Insights - The dollar index rose to a 3-week high, increasing by +0.15%, driven by geopolitical risks in Venezuela and hawkish comments from Minneapolis Fed President Neel Kashkari [1] - The US Dec ISM manufacturing index unexpectedly contracted by -0.3 to 47.9, marking the steepest decline in 14 months, which contributed to the dollar's pullback from its peak [2] - Philadelphia Fed President Anna Paulson indicated a potential for modest adjustments to the funds rate later in the year, with markets pricing in a 16% chance of a -25 basis point rate cut at the upcoming FOMC meeting [3] Dollar Dynamics - The dollar is expected to face underlying weakness as the FOMC is projected to cut interest rates by about -50 basis points in 2026, contrasting with anticipated rate hikes from the BOJ and stable rates from the ECB [4] - The Fed's liquidity boost, including the purchase of $40 billion in T-bills monthly, is exerting additional pressure on the dollar, alongside concerns regarding a dovish Fed Chair appointment by President Trump [5] Euro Impact - The EUR/USD pair dropped to a 3-week low, decreasing by -0.19%, influenced by the dollar's strength and lower German bund yields affecting interest rate differentials [6]