The dollar index (DXY00) on Monday fell by -0.27%.  The dollar was under pressure on Monday as the Fed is expected to cut the fed funds target range by -25 bp at the conclusion of the Tue/Wed FOMC meeting.  Also, Monday's rally in the S&P to a new record high has dampened liquidity demand for the dollar.  In addition, increased expectations for Fed easing through year-end are bearish for the dollar.  The dollar added to its losses Monday after the US Sep Empire manufacturing survey of general business conditions fell more than expected to a three-month low.

The dollar is also being undercut by concerns over Fed independence, which could prompt foreign investors to dump dollar assets as President Trump attempts to fire Fed Governor Cook, and by Stephen Miran's intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors. 

The US Sep Empire manufacturing survey of general business conditions fell -20.6 to a three-month low of -8.7, weaker than expectations of 5.0.

The markets are pricing in a 100% chance of a -25 bp rate cut and a 5% chance of a 50 bp rate cut at the Tue/Wed FOMC meeting.  After the fully expected -25 bp rate cut at Wednesday's meeting, the markets are discounting an 82% chance of a second -25 bp rate cut at the Oct 28-29 meeting.  The markets are now pricing in an overall -68 bp rate cut in the federal funds rate by year-end to 3.65% from the current 4.33% rate.

EUR/USD (^EURUSD) on Monday rose by +0.30%.  The euro moved higher on Monday due to weakness in the dollar. The euro added to its gains Monday on hawkish comments from ECB Governing Council member Kocher, who said the ECB is close to the end of its rate-cutting cycle.  Central bank divergence is supporting the euro, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly three times by the end of this year. 

Gains in the euro were contained on Monday after the German Aug wholesale price index fell by the most in a year, a dovish factor for ECB policy.  Also, last Friday's action by Fitch Ratings to cut France's credit rating is bearish for the euro.  In addition, signs that the Russian-Ukrainian war will continue are undercutting the euro after Russia said last Friday that negotiations with Ukraine are on "pause." 

The German Aug wholesale price index fell -0.6% m/m, the biggest decline in a year.

ECB Governing Council member Kocher said the ECB interest rate cut cycle is at "or very close to" the end, and policy can remain on hold for the time being, provided there are no major shocks in data. 

Fitch Ratings late last Friday downgraded France's credit assessment to A+ from AA-, citing the country's rising public indebtedness and political instability.

Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.

USD/JPY (^USDJPY) on Monday fell by -0.24%.  Dollar weakness on Monday supported gains in the yen. Also, lower T-note yields on Monday were bullish for the yen.  Movements in the yen might have been exaggerated on Monday with trading activity below average as markets in Japan were closed for the Respect-for-the-Aged Day holiday. 

The yen is being undercut by political uncertainty in Japan after Japanese Prime Minister Ishiba resigned last week following two election results that stripped Japan's ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy. 

December gold (GCZ25) on Monday closed up +32.60 (+0.88%), and December silver (SIZ25) closed up +0.132 (+0.31%).  Precious metal prices settled higher on Monday, with Dec gold posting a contract high and nearest-futures (U25) gold posting an all-time high of $3,686.40 an ounce.  Also, Dec silver posted a contract high, and nearest-futures (U25) silver posted a 14-year high. 

Monday's weaker dollar and lower global bond yields were bullish for precious metals.  Also, expectations for at least a 25 bp rate cut by the Fed at the Tue/Wed FOMC meeting are supportive for precious metals. The markets are also pricing in roughly three Fed rate cuts by year-end, a bullish factor for precious metals.  In addition, the escalation of geopolitical risks in Europe has also boosted safe-haven demand for precious metals after Fitch Ratings late last Friday downgraded France's credit assessment.

Gains in precious metals are limited due to Monday's rally in the S&P 500 to a new record high, which curbs safe-haven demand for precious metals.   Hawkish central bank comments on Monday also weighed on precious metals after ECB Governing Council member Kocher said the ECB is close to the end of its rate-cutting cycle.  A negative factor for silver prices was weaker-than-expected Chinese economic reports, including industrial production, home prices, and unemployment, which show weakness in the Chinese economy, a negative factor for industrial metals demand.

Gold prices continue to receive support from uncertainty tied to US tariffs and geopolitical risks. Also, political uncertainty in France and Japan is driving demand for gold as a safe-haven asset.  French Prime Minister Bayrou resigned after losing a confidence vote in parliament last week.  Also, Japanese Prime Minister Ishiba resigned last week following two election results that stripped Japan's ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy. 

Precious metals prices continue to receive support from fund buying of precious metal ETFs.  Gold holdings in ETFs rose to a 2.25-year high last Wednesday, and silver holdings in ETFs rose to a 3-year high on September 3.

China's Aug industrial production rose +5.2% y/y, weaker than expectations of +5.6% y/y.  Also, China's Aug retail sales rose +3.4% y/y, weaker than expectations of +3.8% y/y.  In addition, the China Aug surveyed jobless rate unexpectedly rose +0.1 to a 6-month high of 5.3%, showing a weaker labor market than expectations of no change at 5.2%.  Finally, China's Aug new home prices fell -0.3% m/m, the twenty-seventh consecutive month home prices have declined.