The dollar index (DXY00) Thursday rose by +0.04% and posted a 1-3/4 month high. The dollar found support on Thursday’s stronger-than-expected US Sep CPI report, a hawkish factor for Fed policy. Also, hawkish comments from Atlanta Fed President Bostic were bullish for the dollar when he said he's "open to skipping an interest rate cut at the November FOMC meeting.” In addition, the weakness in stocks Thursday boosted liquidity demand for the dollar.
The dollar fell back from its best levels Thursday after US weekly jobless claims jumped to a 14-month high, a dovish factor for Fed policy. Also, dovish comments from New York Fed President Williams undercut the dollar when he said interest rates will return to normal “over time.”
US weekly initial unemployment claims increased by +33,000 to a 14-month high of 258,000, showing a weaker labor market than expectations of 230,000.
US Sep CPI eased to +2.4% y/y from +2.5% y/y in Aug, stronger than expectations of +2.3% y/y. Also, Sep CPI ex-food and energy unexpectedly strengthened to +3.3% y/y from +3.2% y/y in Aug, stronger than expectations of no change at +3.2% y/y.
Atlanta Fed President Bostic said he's "open to skipping an interest rate cut at the November FOMC meeting if the data suggests that's appropriate."
New York Fed President Williams said, "Looking ahead, based on my current forecast for the economy, I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time."
The markets are discounting the chances at 85% 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 fell by -0.12% and dropped to a 1-3/4 month low. The stronger dollar on Thursday undercut the euro. Also, expectations for the ECB to cut interest rates by 25 bp at next Thursday’s meeting weigh on the euro. Losses in the euro were contained on Thursday’s Eurozone economic news that showed German Aug retail sales rose by the most in 5 months. In addition, Thursday’s increase in the 10-year German bund yield to a 5-week high strengthened the euro’s interest rate differentials.
German Aug retail sales rose 1.6% m/m, the largest increase in 5 months.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for the October 17 meeting and 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) Thursday fell by -0.44%. The yen on Thursday recovered from a 1-3/4 month low against the dollar and moved higher after Japanese Sep producer prices rose more than expected, a hawkish factor for BOJ policy. The yen added to its advance on hawkish comments from BOJ Deputy Governor Himino, who said the BOJ will continue to raise interest rates if the economy performs in line with its projections. The yen fell back from its best levels Thursday after T-note yields rose, a bearish factor for the yen.
Japan's Sep PPI was unch m/m and +2.8% y/y, stronger than expectations of -0.3% m/m and +2.3% y/y.
BOJ Deputy Governor Himino said if the outlook for the economy and inflation is realized, "the BOJ will accordingly continue to raise the policy interest rate."
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 +24% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Thursday closed up +13.30 (+0.51%), and December silver (SIZ24) closed up +0.570 (+1.86%). Precious metals Thursday finished moderately higher. Thursday’s increase in inflation expectations boosted demand for gold as a store of value after the US 10-year breakeven inflation rate jumped to a 4-month high. Also, safe-haven demand for precious metals increased on ramped-up war rhetoric in the Middle East. Israeli Defense Minister Gallant said Israel's response to Iran's missile attack on Israel "will be deadly, precise and above all surprising," while Iran said it's ready to launch thousands of missiles at Israel if needed.
Precious metals fell back from their best levels Thursday after the dollar index rallied to a 1-3/4 month high. Also, hawkish central bank comments Thursday undercut precious metals after Atlanta Fed President Bostic said he's "open to skipping an interest rate cut at the November FOMC meeting,” and BOJ Deputy Governor Himino said the BOJ will continue to raise interest rates if the economy performs in line with its projections. In addition, Thursday’s stronger-than-expected US Sep CPI report may keep the Fed from aggressively cutting interest rates, a negative factor for precious metals.
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.
