The dollar index (DXY00) Thursday rose by +0.26% to a 6-week high. The dollar remains underpinned as heightened Middle East tensions are boosting safe-haven demand for the dollar. Also, higher T-note yields Thursday strengthened the dollar’s interest rate differentials. In addition, weakness in the yen supports the dollar as the yen fell to a 6-week low against the dollar Thursday on expectations the BOJ will not raise interest rates again this year.
US weekly initial unemployment claims rose +6,000 to 225,000, showing a slightly weaker labor market than expectations of 221,000.
The US Sep ISM services index rose +3.4 to 54.9, stronger than expectations of 51.7 and the fastest pace of expansion in 19 months.
US Aug factory orders unexpectedly fell -0.2% m/m, weaker than expectations of +0.1% m/m.
Chicago Fed President Goolsbee said, "Interest rates need to come down by a lot over the next 12 months as inflation is coming down and is close to target, and unemployment has come up, and the job market is basically where we would want it to be."
The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 32% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Thursday fell by -0.14% and posted a 3-week low. Dollar strength Thursday undercut the euro. Also, easing price pressures in the Eurozone are dovish for ECB policy and negative for the euro after the Eurozone Aug PPI fell -2.3% y/y, right on expectations. Losses in the euro were limited after the Eurozone Sep S&P composite PMI was revised higher.
The Eurozone Sep S&P composite PMI was revised upward by +0.7 to 49.6 from the previously reported 48.9.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for the October 17 meeting and at 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) Thursday rose by +0.20%. The yen on Thursday dropped to a 6-week low against the dollar on negative carryover from Wednesday when Japanese Prime Minister Ishiba ruled out a BOJ interest rate increase for now, and BOJ Governor Ueda signaled that the BOJ was in no hurry to raise interest rates. Also, Thursday’s downward revision to the Japan Sep Jibun Bank services PMI is bearish for the yen. In addition, higher T-note yields Thursday pressured the yen.
The Japan Sep Jibun Bank services PMI was revised lower by -0.8 to 53.1 from the previously reported 53.9.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 2% for the October 30-31 meeting and at +18% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Thursday closed up +9.50 (+0.36%), and December silver (SIZ24) closed up +0.544 (+1.70%). Precious metals Thursday recovered from early losses and are settled moderately higher. Precious metals have safe-haven support from the escalation of Middle East tensions after Israeli warplanes attacked Beirut overnight when eight Israeli soldiers were killed in southern Lebanon in battles against Hezbollah. The markets are awaiting Israel’s response to Tuesday’s missile barrage from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and “will pay.” Silver prices recovered their losses and moved higher after the Eurozone Sep S&P composite PMI was revised upward, and the US Sep ISM services index expanded at the fastest pace in 19 months, supportive factors for industrial metals demand.
Dovish central comments Thursday boosted demand for gold as a store of value. BOE Governor Bailey said the BOE could become a "bit more aggressive" in cutting interest rates if inflation continues to fall. Also, Chicago Fed President Goolsbee said, "Interest rates need to come down by a lot over the next 12 months.”
Thursday’s rally in the dollar index to a 6-week high was bearish for metals prices. Also, higher T-note yields on Thursday were negative for precious metals. In addition, precious metals prices were weighed down by Thursday’s stronger-than-expected US Sep ISM services report, which is hawkish for Fed policy and reduces the chances for another 50 bp rate cut by the Fed.
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. For more information please view the Barchart Disclosure Policy here.
