The dollar index (DXY00) on Thursday fell by -0.40%. The dollar came under pressure Thursday from weaker-than-expected U.S. economic reports on Q2 GDP and Aug pending home sales. Losses in the dollar accelerated on dovish comments from Chicago Fed President Goolsbee, who warned that policymakers were at risk of raising interest rates too much. In addition, strength in the yen Thursday weighed on the dollar after comments from Japanese Finance Minister Suzuki sparked speculation Japan was close to intervening in the currency market to support the yen. Finally, strength in stocks Thursday reduced the liquidity demand for the dollar.
Thursday’s U.S. economic news was mostly weaker than expected and bearish for the dollar. Q2 GDP was unchanged at 2.1% (annualized q/q), weaker than expectations of an upward revision to 2.2%. Also, Aug pending home sales fell -7.1% m/m, weaker than expectations of -1.0% m/m and the biggest decline in 11 months. Conversely, weekly initial unemployment claims rose +2,000 to 204,000, showing a stronger labor market than expectations of 215,000.
Dovish comments on Thursday from Chicago Fed President Goolsbee were bearish for the dollar when he said policymakers were at risk of overshooting on interest rates by putting too much emphasis on the idea that steep job losses are needed to curb inflation.
EUR/USD (^EURUSD) on Thursday fell by +0.52%. Weakness in the dollar Thursday prompted short covering in the euro. Gains in the euro accelerated on hawkish comments from ECB Governing Council member Nagel, who said additional ECB interest rate hikes may be on the way "if data indicate that further action is warranted." The euro also found support on Thursday’s news that showed stronger-than-expected Eurozone Sep economic confidence. In addition, Thursday’s jump in the 10-year German bund yield to a 12-year high strengthened the euro’s interest rate differentials. On the negative side was Thursday’s report that showed German Sep consumer prices rose less than expected, a dovish factor for ECB policy.
Eurozone Sep economic confidence fell -0.3 to 93.3, stronger than expectations of 92.4.
German Sep CPI (EU harmonized) rose +0.2% m/m and +4.3% y/y, weaker than expectations of +0.3% m/m and +4.5% y/y, with the +4.3% y/y gain the smallest annual increase in two years.
USD/JPY (^USDJPY) on Thursday fell by -0.23%. The yen on Thursday posted moderate gains as it recovered slightly from Wednesday’s 11-month low against the dollar. Short covering emerged in the yen Thursday on comments from Japanese Finance Minister Suzuki, who said authorities will take appropriate responses if there are excessive currency moves. Also, Thursday’s jump in the 10-year JGB bond yield to a 10-year high of 0.763% strengthened the yen’s interest rate differentials.
October gold (GCV3) on Thursday closed -11.90 (-0.64%), and Dec silver (SIZ23) closed +0.017 (+0.07%). Precious metals prices on Thursday settled mixed, with gold falling to a 6-1/2 month low. Higher global bond yields Thursday undercut precious metals prices. Long liquidation pressures also weighed on gold prices after long gold holdings in ETFs fell to a 3-1/2 year low on Wednesday. Silver prices also saw some pressure after U.S. Q2 GDP was revised lower, and after Aug pending home sales fell more than expected, negative factors for industrial metals demand. On the positive side, Thursday was a weaker dollar and dovish comments from Chicago Fed President Goolsbee, who said policymakers were at risk of raising interest rates too much.
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.
