The dollar index (DXY00) today is down by -0.17%. The dollar is moving lower today as dovish comments from Boston Fed President Susan Collins reinforced expectations that the Fed will cut interest rates at the October 28-29 FOMC meeting, when she said it is prudent for the Fed to cut interest rates more this year. Also, the strength in stocks today reduced some liquidity demand for the dollar. The dollar recovered from its worst level today after the US Oct Empire manufacturing survey of general business conditions rose more than expected.
The ongoing shutdown of the US government is bearish for the dollar. The longer the shutdown is maintained, the more likely the US economy will suffer, a negative factor for the dollar.
The US Oct Empire manufacturing survey of general business conditions index rose +19.4 to 10.7, stronger than expectations of -1.8.
Boston Fed President Susan Collins said, “With inflation risks somewhat more contained, but greater risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market.”
The markets are pricing in a 97% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) today is up by +0.15%. The euro is moving higher today due to a weak dollar. Also, hawkish comments today from Governing Council member Makhlouf and Dolenc gave the euro a boost when they signaled that current interest rates are appropriate. Gains in the euro accelerated on optimism that budget concessions made by French Prime Minister Lecornu will allow him to pass a budget and avoid a no-confidence vote on Thursday, restoring some political stability in France. Gains in the euro are limited after the Eurozone’s August industrial production posted its largest decline in four months.
Political uncertainty in France is limiting gains in the euro, as French Prime Minister Lecornu may be forced out due to a no-confidence ballot on Thursday. The new government must now survive a no-confidence vote at the National Assembly on Thursday to avoid the need to call for a snap election.
Eurozone Aug industrial production fell -1.2% m/m, the biggest decline in 4 months, but better than expectations of -1.6% m/m.
ECB Governing Council member Makhlouf said he’s more worried that inflation will come in above the ECB’s 2% target than below it.
ECB Governing Council member Dolenc said current ECB policy “doesn’t stimulate inflationary pressures on one hand, while not hindering economic activity on the other,” so he sees no reason to change interest rates this month or during the coming months.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) today is down by -0.33%. The yen rose to a 1-week high against the dollar today as the escalation of US-China trade tensions sparked safe-haven demand for the yen. Also, lower T-note yields today are supportive of the yen. Gains in the yen are limited after Japan’s Aug industrial production was revised lower. Also, today’s +1.75% rally in the Nikkei Stock Index curbed safe-haven demand for the yen.
The yen has been under pressure over the past week, as Japan’s governing coalition collapsed following talks between LDP leader Takaichi and Komeito leader Saito, which ended without an agreement being reached. The move makes it harder for Takaichi to garner the support needed to pass budgets or any meaningful legislation and could potentially lead to another election.
Japan’s Aug industrial production was revised downward by -0.3 to -1.5% m/m from the previously reported -1.2% m/m, the biggest decline in 9 months.
December COMEX gold (GCZ25) today is up +63.70 (+1.53%), and December COMEX silver (SIZ25) is up +1.033 (+2.04%). Gold and silver prices are sharply higher today, with Dec gold posting a new contract high and nearest-futures (V25) posting a new all-time high of $4,210.60 a troy ounce.
The escalation of US-China trade tensions is supporting safe-haven demand for precious metals. Also, the ongoing US government shutdown has fueled demand for the metals as a safe haven. Gold prices added to their gains on dovish comments from Boston Fed President Susan Collins, who said it is prudent for the Fed to cut interest rates more this year.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and political turmoil in France and Japan. Also, President Trump’s attacks on Fed independence are boosting demand for gold. In addition, recent weaker-than-expected US economic news has bolstered the outlook for the Fed to keep cutting interest rates, a bullish factor for precious metals.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Tuesday, and silver holdings in ETFs rose to a 3.25-year high on the same day.
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. This article was originally published on Barchart.com
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