The dollar index (DXY00) on Thursday finished little changed. The dollar Thursday recovered from a 1-week low and was little changed on better-than-expected US economic news that was hawkish for Fed policy. Weekly jobless claims unexpectedly fell to a 5-month low, and Sep personal spending rose more than expected. Thursday’s slump in stocks also boosted liquidity demand for the dollar. However, Thursday's strength in the euro limited the dollar's upside as better-than-expected Eurozone economic news boosted the euro to a 2-week high.
US weekly initial unemployment claims unexpectedly fell -12,000 to a 5-month low of 216,000, showing a stronger labor market than expectations of an increase to 230,000.
The US Q3 employment cost index rose +0.8% q/q, weaker than expectations of +0.9% q/q and the lowest growth rate in 3 years.
US Sep personal spending rose +0.5% m/m, stronger than expectations of +0.4% m/m. Sep personal income rose +0.3% m/m, right on expectations.
The US Sep core PCE price index was unchanged from Aug at +2.7% y/y, stronger than expectations of +2.6% y/y.
The US Oct MNI Chicago PMI unexpectedly fell -5.0 to a 5-month low of 41.6, weaker than expectations of an increase to 47.0.
The markets are discounting the chances at 94% 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 +0.13% and posted a 2-week high. Stronger-than-expected Eurozone economic news Thursday boosted the euro. The euro fell back from its best levels after the dollar recovered from early losses. Also, dovish comments from ECB Governing Council member Panetta undercut the euro when he said the ECB must continue to lower borrowing costs to keep inflation from undershooting.
The Eurozone Sep unemployment rate was unchanged at a record low 6.3%, showing a stronger labor market than expectations of an increase to 6.4%.
Eurozone Oct CPI rose +2.0% y/y, stronger than expectations of +1.9% y/y. Oct core CPI rose +2.7% y/y, stronger than expectations of +2.6% y/y.
German Sep retail sales unexpectedly rose +1.2% m/m, stronger than expectations of a decline of -0.6% m/m.
ECB Governing Council member Panetta said, "Monetary conditions are still tight," and the ECB must continue to lower borrowing costs to keep inflation from undershooting.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 25% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Thursday fell by -0.89%. The yen rallied Thursday after the BOJ kept interest rates unchanged at today’s policy meeting. However, BOJ Governor Uedas said the BOJ will continue to raise interest rates if their economic and inflation forecasts are realized. Thursday’s slump in stocks also boosted some safe-haven demand for the yen.
Thursday’s mixed Japanese industrial production and retail sales reports limited the upside in the yen. The yen also continues to see weakness from Japanese political uncertainty after the LDP-led coalition lost its majority in the lower house of Parliament in this past weekend's election.
Japan Sep industrial production rose +1.4 % m/m, stronger than expectations of +0.8% m/m.
Japan Sep retail sales fell -2.3% m/m, weaker than expectations of -0.3% m/m and the biggest decline in nearly 4-1/2 years.
As expected, the BOJ voted 9-0 to keep the overnight call rate unchanged at 0.25%.
BOJ Governor Ueda said foreign exchange rates have been impacting price trends in Japan, and policymakers will raise interest rates if their economic and inflation forecasts are realized.
December gold (GCZ24) Thursday closed down -51.50 (-1.84%), and December silver (SIZ24) closed down -1.279 (-3.75%). Precious metals on Thursday sold off sharply, with silver falling to a 1-1/2 week low. Higher global bond yields Thursday undercut precious metals prices. Precious metals were also under pressure Thursday as sticky global price pressures may keep the world’s central banks from cutting interest rates aggressively after the US Sep core PCE price index, the Fed’s preferred inflation gauge rose more than expected, and after Eurozone Oct CPI rose more than expected. In addition, hawkish comments Thursday from BOJ Governor Ueda weighed on gold when he said the BOJ would keep raising interest rates as long as the BOJ’s economic and inflation forecasts are realized. Losses in precious metal accelerated Thursday after the dollar index recovered from a 1-week low and was little changed.
Gold continues to have safe-haven demand from US political uncertainty ahead of next Tuesday's US election. Also, there is Japanese political uncertainty after the ruling LDP lost its majority in the lower house in this past weekend's election. In addition, dovish comments Thursday from ECB Governing Council member Panetta were bullish for precious metals when he said the ECB must continue to lower borrowing costs to keep inflation from undershooting.
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.
