The dollar index (DXY00) climbed to a 7-week high today and is up by +0.24%. Weakness in the yen is positive for the dollar, as it tumbled to a 2-week low today. Also, today’s +1% jump in WTI crude oil prices boosts inflation expectations and may prompt the Fed to keep tightening monetary policy, a bullish factor for the dollar. The dollar also has carryover support from Wednesday when the FOMC raised interest rates by 25 bp and signaled another rate hike by the end of the year. The dollar fell from its best level after US Aug manufacturing production and Aug leading indicators unexpectedly declined.
US Aug manufacturing production unexpectedly fell -0.3% m/m, weaker than expectations of +0.3% m/m and the largest decline in 10 months.
US Aug leading indicators unexpectedly fell -0,1%, weaker than expectations of a +0.1% increase and the first decline in 5 months.
Markets are pricing in a 58% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) dropped to a 7-week low today and is down by -0.12%. The dollar’s strength today is weighing on the euro. However, euro losses are limited after German Aug producer prices rose more than expected, a hawkish factor for ECB policy. Also, ECB President Lagarde's comments today were supportive of the euro when she said economic growth in the Eurozone is a bit more promising than we thought.
The ECB Aug 1-year CPI expectations rose to +3.0% from +2.9% in July, weaker than expectations of +3.1%. The Aug 3-year CPI expectations rose to +2.9% from +2.7% in July, stronger than expectations of +2.8%.
German Aug PPI rose +1.1% m/m and +4.6% y/y, stronger than expectations of +0.6% m/m and +3.9% y/y, with the +4.6% y/y increase the largest in 3.25 years.
ECB President Christine Lagarde said economic growth in the Eurozone is a bit more promising than we thought and we're not seeing second round effects on inflation yet.
The markets are discounting a 61% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is up by +1.21% today. The yen tumbled to a 2-week low against the dollar today, despite the BOJ raising interest rates by 25 bp, as two BOJ members dissented and wanted no change in interest rates, signaling opposition to tighter BOJ policy. Also, today’s weaker-than-expected Japan Aug national CPI report is dovish for BOJ policy and undercut the yen. In addition, higher T-note yields today are also weighing on the yen. Yen losses accelerated today after crude oil prices rose more than +1%, a negative factor for Japan’s economy and the yen, as Japan imports more than 90% of its energy.
Japan’s Aug national CPI rose +1.9% y/y, unchanged from July and weaker than expectations of +2.0% y/y. Aug national CPI ex-fresh food and energy rose +1.9% y/y, unchanged from July and weaker than expectations of +2.0% y/y.
As expected, the BOJ raised its overnight call rate today by 25 bp to 1.25% from 1.00% in a 7-2 vote, and BOJ Governor Kazuo Ueda said the BOJ intends to keep raising the rate in response to economic and price conditions.
Markets are pricing in an 18% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is down -10.20 (-0.23%) today, and December COMEX silver (SIZ26) is up +0.615 (+0.93%).
Precious metals prices are mixed today, with silver posting a 1-week high. Today’s rally in the dollar index to a 7-week high is bearish for metals prices. Also, today’s +1% jump in crude oil prices raises inflation expectations and could prompt the world’s central banks to tighten their monetary policies, a bearish factor for precious metals. Higher global bond yields today are also bearish for precious metals. Finally, today’s BOJ rate hike of 25 bp is negative for precious metals.
Silver prices are moving higher today on signs of stronger industrial metals demand in Europe after ECB President Christine Lagarde said economic growth in the Eurozone is a bit more promising than we thought.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 6.5-month high today. Long holdings in silver ETFs rose to a 5.5-month high on August 25.
Strong central bank demand for gold is supporting gold prices, after news last Monday that bullion held in China's PBOC reserves rose by +650,000 ounces to 76.73 million troy ounces in August, the largest increase in three years and the twenty-second consecutive month the PBOC boosted its gold reserves.
