The dollar index (DXY00) extended this week’s rally on Thursday to a 1.75-month high and finished up by +0.14%. The dollar was supported by a jump in the 10-year T-note yield on Thursday to a 19-year high of 5.18%, strengthening the dollar’s interest rate differentials. The dollar also rose Thursday on signs of strength in the US economy after weekly jobless claims unexpectedly fell to a 2-month low, and after Aug new home sales rose more than expected to an 8-month high. Also, hawkish Fed comments supported the dollar on Thursday after New York Fed President John Williams said the Fed has a lot of work to do to contain inflation, and Philadelphia Fed President Anna Paulson said some modest further tightening of monetary policy may be warranted, signaling support for additional Fed rate hikes. In addition, Thursday’s +2% rally in WTI crude oil raises inflation expectations and could persuade the Fed to tighten monetary policy further, a bullish factor for the dollar.
US weekly initial unemployment claims unexpectedly fell -1,000 to a 2-month low of 197,000, showing a stronger labor market than expectations of an increase to 200,000.
US Aug new home sales rose +6.4% m/m to an 8-month high of 684,000, stronger than expectations of 616,000.
New York Fed President John Williams said the Fed still has a lot of work to do given high energy prices and demand driven by investment in artificial intelligence.
Philadelphia Fed President Anna Paulson said underlying measures of inflation remain "stubbornly elevated" and have shown little to no progress. "Looking ahead, if conditions evolve as I expect, some modest further tightening of monetary policy may be warranted" to ensure inflation returns to the Fed's 2% goal.
Markets are pricing in a 69% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) fell to a fresh 1.75-month low on Thursday and finished down by -0.07%. The euro was under pressure on Thursday from a stronger dollar. Also, Thursday’s +2% increase in crude oil prices is negative for the Eurozone economy and the euro, as Europe imports most of its energy.
Euro losses were limited on Thursday after the German Sep IFO business climate survey rose more than expected to a 3.25-year high. Also, hawkish comments on Thursday from ECB Executive Board member Isabel Schnabel supported the euro when she said the energy shock caused by the Iran war is proving to be longer-lasting than initially thought and is spreading beyond just oil.
Eurozone Aug new car registrations rose +4.5% y/y to 708,000 units.
The German Sep IFO business climate survey rose +1.1 to a 3.25-year high of 89.9, stronger than expectations of 89.0.
The markets are discounting a 54% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) rose by +0.33% on Thursday. The yen fell to a 3-week low against the dollar on Thursday as the dollar strengthened. Higher T-note yields also weighed on the yen as the 10-year T-note yield soared to a 19-year high on Thursday. In addition, Thursday’s +2% increase in crude oil prices is bearish for the Japanese economy and the yen as Japan imports more than 90% of its energy. Yen losses were contained Thursday after the 10-year Japan JGB bond yield rose to a 30-year high of 3.087%, which strengthened the yen’s interest rate differentials.
Markets are pricing in a 24% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) closed down -20.40 (-0.47%) on Thursday, and December COMEX silver (SIZ26) closed down -0.962 (-1.48%).
Precious metals prices settled lower on Thursday, with gold and silver posting 1-week lows. Thursday’s rally in the dollar index to a 1.75-month high weighed on metals prices. Higher global bond yields also undercut precious metals on Thursday. In addition, hawkish central bank comments were bearish for precious metals after New York Fed President John Williams and Philadelphia Fed President Anna Paulson signaled they favor additional Fed rate hikes, and ECB Executive Board member Isabel Schnabel said the energy shock is spreading beyond oil prices. Finally, Thursday’s +2% jump in crude oil prices raises inflation expectations and could prompt the world’s central banks to tighten their monetary policies, a bearish factor 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 on Monday. Long holdings in silver ETFs rose to a 5.75-month high on Tuesday.
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.
