The dollar index (DXY00) Monday rose by +0.14%. The dollar rose Monday as Eurozone economic concerns undercut the euro after Eurozone Sep manufacturing and composite PMIs contracted more than expected.
The dollar fell back from its best levels Monday after the US Sep S&P manufacturing PMI unexpectedly contracted by the most in 15 months. Also, dovish Fed comments Monday were bearish for the dollar when Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee said they support additional Fed interest rate cuts. In addition, the strength in stocks on Monday reduced liquidity demand for the dollar.
The US Aug Chicago Fed national activity index rose +0.54 to 0.12, stronger than expectations of -0.20.
The US Sep S&P manufacturing PMI unexpectedly fell -0.9 to 47.0, weaker than expectations of 48.6 and the steepest pace of contraction in 15 months.
Minneapolis Fed President Kashkari said, "The balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate, and he supports another 50 bp of rate cuts this year.
Chicago Fed President Goolsbee said interest rates need to be lowered "significantly" to protect the US labor market and support the economy.
The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and a 54% chance for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) on Monday fell by -0.42%. The euro was under pressure Monday due to signs of weakness in the Eurozone economy after the Eurozone Sep PMIs contracted more than expected, dovish factors for ECB policy. The chances for a -25 bp rate cut by the ECB at the October 17 meeting rose to 41% Monday from 26% last Friday, according to the swaps market.
The Eurozone Sep S&P manufacturing PMI fell -1.0 to 44.8, weaker than expectations of 45.7 and the steepest pace of contraction in 9 months.
The Eurozone Sep S&P composite PMI fell -2.1 to 48.9, weaker than expectations of 50.5 and the steepest pace of contraction in 8 months.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 41% for the October 17 meeting and 100% for that 25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) Monday fell by -0.6%. The yen on Monday moved higher against the dollar after the PBOC boosted stimulus by cutting the 14-day reverse repo rate by -10 bp to 1.85% from 1.95%, which may spur economic growth in China that will benefit Japan’s economy. The yen also garnered support Monday after T-note yields gave up early gains and were little changed. Trading activity in the yen was below normal with markets in Japan closed Monday for the Autumnal Equinox Day holiday.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 6% for the October 30-31 meeting and at +23% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Monday closed up +6.30 (+0.24%), and December silver (SIZ24) closed down -0.420 (-1.23%). Precious metals on Monday settled mixed, with Dec gold posting a contract high. Gold moved higher Monday on increased demand as a store of value due to dovish Fed comments after Minneapolis Fed President Kashkari and Chicago Fed President Goolsbee said they support additional Fed rate cuts this year. Also, Sunday’s action by the PBOC to boost stimulus and cut the 14-day reverse repo rate by -10 bp to 1.85% from 1.95% supports gold. In addition, Monday’s weaker-than-expected US and Eurozone Sep PMIs bolster the case for additional Fed and ECB rate cuts and are bullish for precious metals.
Monday’s dollar strength is a bearish factor for precious metals. Also, strength in stocks on Monday reduced safe-haven demand for precious metals. Silver prices retreated Monday after the US Sep S&P manufacturing PMI and the Eurozone Sep S&P manufacturing PMI contracted more than expected, a negative factor 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.
