Dollar Rallies and Precious Metals Plummet on Trump’s Pick for Fed Chair

Market Overview - The markets are currently pricing in a 17% chance of a -25 basis point rate cut at the upcoming Federal Reserve policy meeting on March 17-18 [1] - The dollar has reached a nearly 4-year low, influenced by President Trump's comments on the dollar's weakness and capital outflows from the US due to budget deficits and political polarization [1] Federal Reserve Insights - St. Louis Fed President Alberto Musalem indicated that lowering the fed funds rate is inadvisable given inflation is above target and risks are balanced [2] - Conversely, Fed Governor Christopher Waller stated that further easing is necessary as monetary policy is still restricting economic activity [2] Economic Indicators - The US January MNI Chicago PMI rose by +11.3 to 54.0, significantly exceeding expectations of 43.7, marking the strongest expansion in over two years [2] - The US December PPI final demand increased by +0.5% month-over-month and +3.0% year-over-year, surpassing expectations [3] Dollar Dynamics - The dollar index (DXY) rose by +0.79% following President Trump's nomination of Keven Warsh as the next Fed Chair, who is perceived as more hawkish [5] - The dollar's strength was further supported by positive economic data, including higher producer prices and a strong Chicago PMI [5] Eurozone Economic Performance - The Eurozone's December unemployment rate fell to a record low of 6.2%, indicating a stronger labor market than anticipated [8] - Eurozone Q4 GDP grew by +0.3% quarter-over-quarter and +1.3% year-over-year, slightly above expectations [9] Japanese Economic Context - Japan's December retail sales fell by -2.0% month-over-month, marking the largest decline in 5.5 years, while industrial production fell by -0.1% month-over-month [13] - The yen is under pressure due to economic data and political factors, with early polls suggesting a potential majority for Prime Minister Takaichi's party in the upcoming election [11] Precious Metals Market - Gold and silver prices experienced significant declines, with February gold dropping to a 1.5-week low and March silver to a 3-week low, driven by a stronger dollar and reduced safe-haven demand [15][16] - Central bank demand for gold remains robust, with China's PBOC increasing its reserves for the fourteenth consecutive month, and global central banks purchasing 220 metric tons of gold in Q3, up +28% from Q2 [20][21]