The dollar index declined slightly on Wednesday, pressured for much of the day as the yen rallied following comments from Japanese officials. The currency had already been facing weakness earlier in the week after Federal Reserve Chair Jerome Powell linked a Justice Department threat to the Fed's independence to disagreements over interest rate policy.
Philadelphia Fed President Anna Paulson said she anticipates rate cuts later this year, pushing the dollar to its session low. However, the currency pared most losses in the afternoon after the Fed's Beige Book reported U.S. economic activity increased at a "slight to modest pace" in most regions since mid-November. "This marks an improvement over the last three report cycles, where a majority of Fed districts reported little change," the report noted.
Stronger-than-expected U.S. economic data also provided support. November retail sales rose 0.6% month-over-month, exceeding forecasts. Producer prices increased 3.0% year-over-year, above expectations. Existing home sales climbed 5.1% month-over-month to a 2.75-year high of 4.35 million units.
Minneapolis Fed President Neel Kashkari stated the economy shows "resilience" and he sees no "impetus" for a rate cut this month. Meanwhile, the euro finished flat against the dollar after giving up modest gains. ECB Vice President Luis de Guindos said global uncertainty is weighing on the Eurozone economy, though inflation "remains in a good place."
The yen gained 0.38% against the dollar, rebounding from a 1.5-year low. Bank of Japan Governor Ueda said Japan's inflation and wages are likely to keep rising moderately. Finance Minister Katayama added, "We won't rule out any means and will respond appropriately to currency moves that are excessive, including those that are speculative."
Gold and silver prices rallied sharply. February COMEX gold closed up $36.60, and March COMEX silver rose 5.85%. January gold reached a new all-time high of $4,635.00 per ounce, while January silver hit a record nearest-futures high of $92.00 per troy ounce.
Precious metals surged amid safe-haven demand fueled by rising tensions in Iran and a possible U.S. response to recent events. Reuters reported some U.S. personnel were advised to leave the Al Udeid Air Base in Qatar. Strong Chinese trade data also supported industrial metals, with December exports rising 6.6% year-over-year.
Concerns about Fed independence boosted demand for precious metals as a store of value. President Trump's directive for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds was seen as quasi-quantitative easing, further supporting metals. Central bank demand remains strong, with China's gold reserves increasing for the fourteenth consecutive month in December.