The dollar index (DXY00) on Monday rose by +0.50% and posted a 2-1/2 month high. The dollar found support Monday from higher T-note yields, which strengthened the dollar’s interest rate differentials. Gains in the dollar accelerated on hawkish Fed comments. Dallas Fed President Logan said she favors the Fed gradually lowering interest rates, and Minneapolis Fed President Kashkari said he “forecasts modest cuts over the next several quarters.”
US Sep leading economic indicators fell -0.5% m/m, weaker than expectations of -0.3% m/m.
Dallas Fed President Logan said, "If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals."
Minneapolis Fed President Kashkari said he supported the Fed's 50 bp rate cut at last month's policy meeting but "forecasts more modest cuts over the next several quarters to get to something around neutral."
The markets are discounting the chances at 89% 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) Monday fell by -0.49% and posted a 2-1/2 month low. The stronger dollar Monday weighed on the euro. Also, Monday’s Eurozone economic news was bearish for the euro after German Sep producer prices fell more than expected, a dovish factor for ECB policy. Also, dovish comments Monday from ECB Governing Council member Simkus undercut the euro when he said “it’s clear” that the ECB will cut interest rates further.
German Sep PPI fell -0.5% m/m and -1.4% y/y, weaker than expectations of -0.2% m/m and -1.1% y/y.
ECB Governing Council member Simkus said the direction of ECB policy is clear, "that interest rates will be lowered further."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 24% chance of a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Monday rose by +0.85%. The yen on Monday tumbled to a 2-1/2 month low against the dollar. The yen was under pressure on Monday due to the negative carryover from last Friday’s Bloomberg report, which said BOJ officials see little need to rush into raising interest rates at this month’s BOJ meeting. The yen extended its losses Monday as T-note yields climbed.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 1% for the October 30-31 meeting and at 32% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Monday closed up +8.90 (+0.33%), and December silver (SIZ24) closed up +0.844 (+2.540%). Precious metals rallied Monday, with Dec gold posting a contract high and nearest-futures (V24) gold posting a record high of $2,738.40 an ounce. Also, Dec silver posted a contract high, and nearest-futures (V24) silver posted an 11-year high. Precious metals rose Monday on safe-haven demand from Middle East tensions and uncertainty regarding next month's US presidential election. Demand for gold as a store of value increased Monday after Chinese banks cut their benchmark lending rates more than expected. In addition, dovish comments Monday from ECB Governing Council member Simkus supported precious metals when he said “it is clear” that the ECB will lower interest rates further. Precious metals fell back from their best levels Monday after the dollar index climbed to a 2-1/2 month high.
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.
