Fed Rate Cut Odds Jump to 80% on Softer US Economic Data

The dollar is taking a hit today, sliding -0.35% as weaker-than-expected economic data stokes expectations for a Fed rate cut in December. Here’s what moved the markets:

The Economic Reality Check

September retail sales came in at +0.2% m/m—below the +0.4% forecast. The more troubling sign: core PPI (excluding food and energy) hit +2.6% y/y versus expectations of +2.7%, signaling inflation cooling faster than anticipated. November consumer confidence also plummeted to a 7-month low of 88.7, missing expectations of 93.3.

Home prices are another soft spot. The Case-Shiller composite-20 index rose just +1.36% y/y—the weakest pace in over two years.

What This Means for Your Portfolio

The market is now pricing in an 80% probability the FOMC cuts rates by 25 basis points on December 9-10. Bond yields are already reacting: the 10-year T-note hit a 3.5-week low at 4.002%.

The Currency Shakeup

With Fed cuts looking more likely, the dollar is weakening across the board. EUR/USD jumped +0.50% on a weaker greenback, while USD/JPY fell -0.57% as yen strength concerns grew (Japan’s Growth Minister signaled potential currency intervention). The BOJ rate hike odds sit at 40% for December 19.

Gold’s Moment

Gold is having its day—December futures up +0.77% to 1-week highs. Lower rates plus ongoing central bank buying (China’s PBOC now holds 74.09M troy ounces, up for 12 straight months) are fueling the rally. Global central banks scooped up 220 MT in Q3 alone, a 28% jump from Q2. However, easing inflation expectations and peace talk optimism around Ukraine are capping upside.