Fed Rate Cut Odds Hit 80%: How It's Shaking Up Currency & Commodity Markets

The Setup: Fed Governor Christopher Waller just dropped some dovish comments on Monday, and the market went crazy. He’s pushing for a December rate cut, which instantly flipped the odds from 30% to 80%. Translation? The Fed might actually cut rates next month.

Dollar Takes a Hit The dollar index slipped 0.03% as traders digest the rate cut chatter. Less demand for USD when rates might be dropping—makes sense. Plus, a rally in stocks pulled liquidity away from the greenback, piling on more pressure.

Euro Rallies on Ukraine Peace Hopes EUR/USD climbed 0.12% as the dollar weakened. The bigger story? NATO Secretary General Rutte signaled a Ukraine peace deal is close since Russia’s military is in rough shape (losing 20k troops monthly, no battlefield wins). That’s a green light for the euro. But here’s the catch—Germany’s Nov IFO business confidence unexpectedly dipped to 88.1 from expectations of 88.5, which capped euro gains.

Yen Struggles Despite Stimulus USD/JPY popped 0.26% as the yen took the short end of the stick. Japan just approved a 17.7 trillion-yen stimulus package ($112B), which is actually bigger than last year’s—but markets aren’t thrilled. The yen briefly recovered when Treasury yields fell, though Japanese markets were closed for a holiday so trading was thin.

Gold & Silver Shine on Rate Cut Bets Gold futures (+0.36%) and silver futures (+0.83%) both rebounded Monday after initially dipping. Waller’s dovish stance is the catalyst—precious metals thrive when rates are falling. Add in geopolitical uncertainty and central banks hoarding bullion (China’s PBOC reserves hit 74.09 million oz in October, marking 12 straight months of buying), and you’ve got a solid floor under prices. Global central banks scooped up 220 MT of gold in Q3, up 28% from Q2.

The Catch: Long liquidation pressure from the post-October highs is still hanging over metals. ETF holdings in gold and silver have cooled off after hitting 3-year peaks.

Bottom Line: Rate cut expectations are reshuffling the deck across FX and commodities. Watch the December 9-10 FOMC meeting—the market’s already pricing in an 80% probability.