Dollar Slips as the Yen Recovers and Precious Metals Soar on Geopolitical Risks

Economic Outlook - The dollar is experiencing underlying weakness as the FOMC is expected to cut interest rates by approximately -50 basis points in 2026, while the BOJ is anticipated to raise rates by +25 basis points in the same year, and the ECB is expected to maintain current rates [1] - Philadelphia Fed President Anna Paulson forecasts inflation moderation, a stabilizing labor market, and growth around 2% for the year, suggesting modest adjustments to the funds rate may be appropriate later in the year [2] - Minneapolis Fed President Neel Kashkari indicates resilience in the US economy and sees no impetus for immediate Fed rate cuts [2] Dollar Performance - The dollar index (DXY) is down by -0.12%, pressured by a rally in the yen and concerns over Fed independence following comments from Fed Chair Powell regarding potential criminal charges against the Federal Reserve [3] - The dollar is further pressured as the Fed increases liquidity in the financial system, having started to purchase $40 billion a month in T-bills [4] Euro and Yen Movements - The euro is slightly higher, up by +0.09%, due to dollar weakness, although gains are limited by comments from ECB Vice President Luis de Guindos about global uncertainty affecting the Eurozone economy [5] - The yen has rebounded from a 1.5-year low against the dollar, driven by hawkish comments from Japanese officials, with BOJ Governor Ueda noting rising inflation and wages [6] Precious Metals Market - Gold and silver prices are rising, with February COMEX gold up +31.50 (+0.68%) and March COMEX silver up +5.152 (+5.97%), supported by geopolitical tensions and strong demand for safe-haven assets [10][11] - Concerns about the Fed's independence and potential easier monetary policy in 2026 are boosting demand for precious metals as a store of value [13] - Central bank demand for gold remains strong, with China's PBOC increasing its reserves by +30,000 ounces to 74.15 million troy ounces in December, marking the fourteenth consecutive month of increases [14]