The dollar index (DXY00) climbed to a 2-week high today and is up by +0.09%. The dollar is climbing today on signs of US economic growth after Aug retail sales rose more than expected. The dollar also has support on expectations that the Fed will raise interest rates by 25 bp at today’s FOMC meeting.
Higher stocks today have curbed demand for dollar liquidity. Also, the larger-than-expected decline in the Sep NAHB housing market index is negative for the dollar. In addition, today’s -2% decline in WTI crude oil lowers inflation expectations and is dovish for Fed policy and bearish for the dollar.
US Aug retail sales rose +1.2% m/m, stronger than expectations of +0.8% m/m and the biggest increase in 5 months. Aug retail sales ex-autos rose +1.4% m/m, stronger than expectations of +0.6% m/m.
The US Aug import price index ex-petroleum rose +0.8% m/m, stronger than expectations of +0.3% m/m.
The US Sep NAHB housing market index fell -3 to match a 3.75-year low of 32, weaker than expectations of 34.
The Federal Reserve is expected to raise interest rates later today for the first time since 2023, as inflation pressures remain above its 2% target. The Federal Open Market Committee (FOMC) is expected to lift the fed funds target range by +25 bp to 3.75%-4.00% and provide updated economic forecasts and rate projections. The markets will also focus on comments from Fed Chair Warsh at the post-meeting press conference.
Markets are pricing in a 94% chance of a +25 bp Fed rate hike at the conclusion of today’s FOMC meeting.
EUR/USD (^EURUSD) is down by -0.07% today and is just above Monday’s 1-month low. The dollar’s strength is undercutting the euro today. However, losses in the euro are limited after Eurozone July industrial production fell less than expected. Also, today’s -2% fall in crude oil prices supports the Eurozone economy, which is heavily dependent on imported oil.
Eurozone July industrial production fell -0.1% m/m, a smaller decline than expectations of -0.2% m/m.
The markets are discounting a 53% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is up by +0.06% today. The yen fell to a 1-week low against the dollar today. The yen is sliding today on weaker-than-expected Japanese economic news that showed July core machine orders fell more than expected. The yen is also under pressure on some negative carryover from Tuesday’s report that said the Japanese government is considering a new defense spending target of 3.5% of GDP, which could boost government debt issuance to fund the increase and is bearish for the yen.
Yen losses today are limited today on stronger-than-expected Japanese trade news for July. Also, today’s -2% fall in crude oil prices is supportive for Japan’s economy and the yen as Japan imports more than 90% of its energy. In addition, lower T-note yields today are bullish for the yen.
The yen has some carryover support from last Tuesday, when the Japanese health minister, who oversees the Government Pension Investment Fund (GPIF) that holds $2.1 trillion in assets, said the fund is still considering whether it needs to review its asset allocation. The recent jump in the 10-year Japanese JGB government bond yield to a 30-year high has fueled speculation that the GPIF may boost its allocation to Japanese government bonds, which would support the yen.
The yen is supported by strong expectations of a BOJ rate increase this week. Markets are pricing in a 100% chance of a +25 bp BOJ rate hike at Friday’s policy meeting. The government favors a rate hike to support the yen and prevent inflationary pressures stemming from the weak yen. Finally, the yen has ongoing support from the recent coordinated US-Japan intervention and fears that further intervention might be forthcoming if the yen remains weak.
Japan July core machine orders fell -3,7% m/m, weaker than expectations of -1.2% m/m.
Japanese trade news was better than expected as Japan's Aug exports rose +19.3% y/y, stronger than expectations of +18.4% y/y. Also, Aug imports rose +28.0% y/y, stronger than expectations of +26.3% y/y and the largest increase in 3.75 years.
December COMEX gold (GCZ26) is up +47.20 (+1.09%) today, and December COMEX silver (SIZ26) is up +1.004 (+1.57%).
Precious metals prices are sharply higher today. Falling crude prices are supportive for precious metals, with WTI crude oil down more than -2% today, which lowers inflation expectations and could persuade global central banks to pursue easier monetary policies, a bullish factor for precious metals. Lower global bond yields today also support precious metals.
Today’s rally in the dollar index to a 2-week high is bearish for metals prices. Also, expectations that the Fed will raise interest rates by 25 bp at today’s FOMC meeting and the BOJ will hike rates by 25 bp at Friday’s meeting are negative for precious metals.
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.
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.
