The dollar index (DXY00) is up by +0.21% today. The dollar is moving higher today, amid the +2% jump in WTI crude oil, which raises inflation expectations and could prompt the Fed to tighten monetary policy, a supportive factor for the dollar. Also, today’s weakness in stocks has boosted some liquidity demand for the dollar.
The US Sep Dallas Fed manufacturing survey fell -1.8 to 9.8, a smaller decline than expectations of 7.8.
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Markets are pricing in a 68% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is down by -0.23% today. Today’s dollar strength is weighing on the euro. Also, today’s +2% jump in crude oil prices is negative for the Eurozone economy and the euro, as Europe imports most of its energy. Euro losses are limited today after the 10-year German Bund yield climbed to a 17-year high of 3.65%, strengthening the euro’s interest rate differentials.
Comments today from ECB President Christine Lagarde were dovish for ECB policy and negative for the euro when she said, “While growth has been resilient, since the last ECB meeting, long-term interest rates have risen notably, which will slow growth and reduce pass-through by more than projected in our September exercise.”
The markets are discounting a 37% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is down by -0.06% today. The yen climbed to a 1-week high against the dollar today as comments from Japan’s top currency official fueled speculation that further weakness in the yen could spark coordinated intervention in the forex market by the US and Japan to support the yen. Also, today’s report showing that Japan’s Aug producer service prices rose at the fastest pace in more than two years is hawkish for BOJ policy and supportive of the yen.
Today’s +2% jump in crude oil prices is limiting yen gains, as higher crude is negative for Japan’s economy and the yen, since Japan imports more than 90% of its energy. Higher T-note yields today are also bearish for the yen.
The yen found support today after Reuters reported that Japan’s top currency official, Atsushi Mimura, said that Japan’s prime minister and finance minister, along with the US, have recently sent a “very clear” message about the yen’s depreciation. His comments have bolstered speculation that Japanese authorities may be preparing another joint intervention with the US to support the yen.
Markets are pricing in a 41% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is down -148.80 (-3.44%) today, and December COMEX silver (SIZ26) is down -3.046 (-4.70%).
Precious metals prices are plunging today, with gold and silver posting 1.75-month lows. Today’s dollar strength is weighing on metals prices. Also, today’s +2% jump in WTI crude oil has boosted inflation expectations and could prompt the world’s central banks to tighten monetary policy, a bearish factor for precious metals. In addition, higher global bond yields today are undercutting precious metals prices.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 6.75-month high today. Long holdings in silver ETFs rose to a 6-month high last Tuesday.
Strong central bank demand for gold is supporting gold prices, after news last Monday that bullion held in China’s PBOC reserves rose by +650,000 ounces to 76.73 million troy ounces in August, the largest increase in three years and the twenty-second consecutive month the PBOC boosted its gold reserves.
On the date of publication,
Rich Asplund
did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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