Gold and Silver came to a screeching halt

Markets

FX and FI market moves were fairly limited on a closing basis but that hides some bigger intraday swings, at least partially driven by president Trump commenting on a wide range of topics, from Cuba over Venezuela to Canada and the UK. The dollar generally traded on the backfoot with modest losses against all G10 peers. As an example of the volatility, EUR/USD opened at 1.1954 and closed at 1.1971 but intraday moves stretched a full big figure. DXY held north of 96 and USD/JPY fell marginally to 153.11. Net daily changes on US interest rate markets amounted to less than 1.5 bps down across the curve. German Bunds, if anything, slightly outperformed at the front. The eye-watering rally in gold and silver came to a screeching halt but volatility was the name of the game here too. After both hit new record highs, they suddenly crashed 8-12% before paring losses back to opening levels. It turned out to be a prelude for today though with both precious metals tumbling down to yesterday’s intraday lows. The drop follows speculation that president Trump is expected to pick Kevin Warsh as the new Fed chair instead of Rick Rieder. Warsh was seen at the White House yesterday evening. Trump afterwards said he’d announce Powell’s successor Friday morning (US time). “A lot of people think this is somebody that could’ve been there a few years ago”, Trump said seen as a reference to Warsh missing out on the chairmanship to Powell in 2017. Warsh had the reputation of a hawk before he aligned himself with Trump’s views on lower rates. Markets seem to give him the benefit of the doubt with the kneejerk reaction in gold and silver accompanied by a higher dollar and US yields. We’d warn against assuming Warsh is a done deal before Trump’s actual announcement though. Any nomination also needs confirmation by the Senate. Some Republicans have threatened to block any nominee until the DoJ probe into Fed chair Powell’s testimony to Congress about the HQ renovations. In terms of event risks, the one for a (partial) drawn-out shutdown is all but gone (see below), removing a potentially hampering factor for the US dollar. But other important ones are as live as they can be. Trump’s comments in recent days have increased the probability for a US strike on Iran after his “massive armada” arrived at or near the region. This is also what lifted oil prices to around the highest levels since the summer of last year. Weekend strikes in the past have been Trump’s preferred MO. The (geo)politics interfere with an interesting European economic agenda with Q4 GDP and several national January inflation numbers due. The latter will be viewed against the backdrop of these rising oil prices as well as some ECB policymakers flagging the potential impact of a stronger euro on the inflation outlook.

News and views

The White House and Senate Democrats agreed on a deal to avert a long partial government shutdown. Under the agreement, Senate would split off five of the remaining six spending bills (funding until the end of fiscal year; Sept 30) that already cleared the House while passing a two-week extension to fund the Department of Homeland Security to allow more time for negotiations on proposed restrictions on immigration enforcement. After Senate approved the modified package, it needs to go back to the House. It’s highly uncertain that this process will be completed by tonight’s deadline given that the House is out this week and not scheduled to return until Monday. A short-term funding lapse is likely.

The US Treasury released its semi-annual report to Congress on macroeconomic and FX policies of major trading partners to the US. Under the period under review, Q2 2024-Q2 2025, Treasury found no major trading partner that met all three criteria for enhanced analysis. Those are running a bilateral goods trade surplus with the US exceeding $20bn, having a current account surplus of more than 3% of GDP and engaging in net FX purchases totaling more than 2% of GDP over a 12-month period. While Treasury has not designated China as a currency manipulator in this report, China stands out among our major trading partners in its lack of transparency around its exchange rate policies and practices. It remains on the monitoring list together with Japan, Korea, Taiwan, Thailand, Singapore, Vietnam, Germany, Ireland, and Switzerland. Only Thailand didn’t feature on the list in the June 2025 report. The country met the first two criteria because of trade re-routing.

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