The dollar index (DXY00) today is up by +0.10% and posted a 2-1/4 month high. Today’s weaker-than-expected UK consumer price report for September is dovish for BOE policy and undercut the British pound (^GBPUSD) to the benefit of the dollar. The dollar also found support on today’s stronger-than-expected US Sep import price index ex-petroleum report, a hawkish factor for Fed policy. Lower T-note yields today are limiting the upside in the dollar.
The US Sep import price index ex-petroleum rose +0.2% m/m, stronger than expectations of +0.1% m/m.
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) is down by -0.13% and dropped to a 2-1/2 month low. Today’s dollar strength is weighing on the euro. The euro is also under pressure on expectations that the ECB will cut interest rates by 25 bp at Thursday’s policy meeting.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for the October 17 meeting and 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) today is up by +0.27%. The yen is under pressure today due to dovish comments from BOJ Board member Adachi, who said the BOJ should take a slow approach to raising interest rates. The yen also declined after Japan Aug core machine orders unexpectedly declined, a dovish factor for BOJ policy. Lower T-note yields today are limiting losses in the yen.
Japan Aug core machine orders unexpectedly fell -1.9% m/m, weaker than expectations of +0.1% m/m.
BOJ Board member Adachi said, "What we need to be careful of, in a gradual rate hike process, is that we raise it extremely gradually while keeping financial conditions accommodative" until the price trend gets to 2%.
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 27% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) today is up +15.60 (+0.58%), and December silver (SIZ24) closed up +0.479 (+1.51%). Precious metals today are moderately higher, with gold posting a 2-1/2 week high and silver posting a 1-week high. Today’s slide in global bond yields is bullish for precious metals. Gold also found demand as a store of value today on dovish comments from BOJ Board member Adachi, who said the BOJ should take a slow approach to raising interest rates. In addition, heightened tensions in the Middle East continue to boost safe-haven demand for precious metals.
A stronger dollar today is limiting the upside in precious metals. Also, today’s report showed an unexpected decline in Japan’s August core machine orders, which is negative for industrial metals demand and bearish for silver prices.
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.
