The dollar index (DXY00) Thursday fell by -0.35%. The decline in T-note yields Thursday weakened the dollar’s interest rate differentials and undercut the dollar. Also, the strength in stocks Thursday reduced liquidity demand for the dollar. Losses in the dollar were limited by stronger-than-expected US economic news on weekly jobless claims, the Oct S&P manufacturing PMI, and Sep new home sales, hawkish factors for Fed policy.
US weekly initial unemployment claims unexpectedly fell -15,000 to 227,000, showing a stronger labor market than expectations of an increase to 242,000.
The US Sep Chicago Fed national activity index unexpectedly fell -0.27 to a 5-month low of -0.28 versus expectations of an increase to 0.50.
The US Oct S&P manufacturing PMI rose +0.5 to 47.8, stronger than expectations of 47.5.
US Sep new home sales rose +4.1% m/m to a 16-month high of 738,000, stronger than expectations of 720,000.
The markets are discounting the chances at 95% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Thursday rose by +0.37%. The weaker dollar Thursday prompted some short covering in the euro. Also, Thursday’s news that showed the Eurozone Oct S&P manufacturing PMI more than expected to a 5-month high is bullish for the euro. In addition, hawkish comments Thursday from ECB Governing Council member and Bundesbank President Nagel were supportive of the euro when he said the ECB shouldn’t be too hasty with interest rate cuts.
The Eurozone Oct S&P manufacturing PMI rose +0.9 to a 5-month high of 45.9, stronger than expectations of 45.1.
The Eurozone Oct S&P composite PMI rose +0.1 to 49.7, right on expectations.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 42% chance of a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Thursday fell by -0.58%. The yen Thursday moved higher after short covering emerged on comments from Japanese Finance Minister Kato, who warned of the recent weakness in the yen, which bolstered speculation that Japanese authorities may soon intervene in the forex market to support the yen. The yen added to its gains Thursday after T-note yields declined. However, the upside in the yen was limited after the Japan Oct Jibun Bank manufacturing PMI fell to a 7-month low.
The Japan Oct Jibun Bank manufacturing PMI fell -0.7 to 49.0, the steepest pace of contraction in 7 months.
Japanese Finance Minister Kato warned after Wednesday's slide in the yen to a 2-3/4 month low that "we will closely monitor the foreign exchange market with a stronger sense of urgency, including watching for speculative trading."
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at 29% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Thursday closed up +19.50 (+0.71%), and December silver (SIZ24) closed down -0.044 (-0.13%). Precious metals on Thursday settled mixed. A weaker dollar Thursday and lower T-note yields supported precious metals. However, profit-taking late in the session took prices off their best levels, with silver falling into negative territory. Also, precious metals have underlying support from safe-haven demand from Middle East tensions and uncertainty regarding next month's US presidential election.
Demand for gold as a store of value is also strong on expectations that the US budget deficit will continue to be a major problem regardless of who wins next month's US presidential election. Finally, fund buying of gold supported gold prices as long gold positions in ETFs rose to an 8-3/4 month high Wednesday. Silver garnered support from today’s stronger-than-expected US economic news on Oct S&P manufacturing activity and Sep new home sales, which are supportive factors for industrial metals demand.
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.
