The dollar index (DXY00) Friday rose by +0.19%. The dollar recovered from early losses and posted moderate gains on Friday. Short covering emerged in the dollar Friday after T-note yields rose on stronger than expected US economic news on Sep capital goods new orders nondefense ex-aircraft and parts and the University of Michigan US Oct consumer sentiment index. The dollar Friday initially moved lower as strength in stocks reduced liquidity demand for the dollar.
US Sep capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.5% m/m, stronger than expectations of +0.1% m/m.
The University of Michigan US Oct consumer sentiment index was revised upward by +1.6 to a 6-month high of 70.5, stronger than expectations of 69.0.
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) Friday fell by -0.30%. The euro Friday gave up early gains and turned lower after the dollar rebounded from losses and moved higher. The euro was also pressured Friday after the Eurozone Sep M3 money supply rose by the most in 1-3/4 years, a negative factor for the euro. In addition, ECB Sep inflation expectations eased, a dovish factor for ECB policy.
The euro on Friday initially moved higher on a stronger-than-expected German Oct IFO business confidence report. Also, hawkish comments today from ECB Governing Council member Simkus boosted the euro when he pushed back on speculation that the ECB should cut interest rates by 50 bp at the next ECB meeting.
Eurozone Sep M3 money supply rose +3.2% y/y, stronger than expectations of +2.9% y/y and the highest in 1-3/4 years.
The Eurozone Sep ECB 1-year inflation expectations eased to a 3-year low of +2.4% from +2.7% in Aug, better than expectations of 2.6%. The Sep 3-year inflation expectations eased to a 3-year low of 2.1% from 2.3% in Aug, better than expectations of 2.2%.
The German Oct IFO business climate rose +1.1 to 86.5, stronger than expectations of 85.6.
ECB Governing Council member Simkus said, "As I read the data, I don't see a case for a 50 bp rate cut" from the ECB.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 41% chance of a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Friday rose by +0.36%. The yen retreated Friday after BOJ Governor Ueda's comments signaled no interest rate hike by the BOJ at next week’s policy meeting. Also, concern that Japan’s ruling coalition could lose its majority in the lower house of parliament for the first time since 2009 at this weekend’s Japanese elections undercut the yen. A rebound in T-note yields Friday also weighed on the yen. Losses in the yen were limited Friday after Japan Oct Tokyo core CPI rose more than expected, a hawkish factor for BOJ policy.
The Japan Aug leading index CI was revised upward by +0.2 to 106.9 from the previously reported 106.7.
The Japan Oct Tokyo CPI eased to +1.8% y/y from +2.1% y/y in Sep, right on expectations. The Oct Tokyo CPI ex-fresh food and energy rose +1.8% y/y, stronger than expectations of +1.6% y/y.
BOJ Governor Ueda signaled that the BOJ would not hike interest rates next week when he said, "I believe the BOJ has enough time" before making a policy decision on interest rates.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at 20% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Friday closed up +5.70 (+0.21%), and December silver (SIZ24) closed down -0.016 (-0.05%). Precious metals Friday settled mixed. Precious metals have underlying support from safe-haven demand from Middle East tensions and uncertainty regarding next month's US presidential election. Also, demand for gold as a store of value is strong, based on expectations that the US budget deficit will continue to be a major problem regardless of who wins next month's US presidential election. Silver found support Friday after US Sep capital goods new orders nondefense ex-aircraft and parts rose more than expected, a supportive factor for industrial metals demand.
Gains in precious metals Friday were limited due to a stronger dollar. Also, higher T-note yields on Friday weighed on precious metals. In addition, hawkish comments Friday from ECB Governing Council member Simkus undercut gold when he said he couldn’t justify a 50 bp interest rate cut by the ECB.
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.
