The dollar index (DXY00) today is up sharply by +1.58% at a 4-month high. The dollar is soaring today after Republican candidate Trump won the US presidential election. There is concern that Trump’s low tax and high tariff policies will boost inflation and slow the pace of Fed interest rate cuts, a bullish factor for the dollar and a bearish factor for gold. Today’s jump in the 10-year T-note yield to a 4-month high also strengthens the dollar’s interest rate differentials.
The markets are discounting the chances at 99% 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) today is sharply lower by -1.89% and dropped to a 4-1/4 month low. The main bearish factor for the euro today is the soaring dollar. The euro is also lower on concern that President-elect Trump’s high tariff policies could slow trade and weigh on the Eurozone economy. In addition, falling producer price pressures in the Eurozone are dovish for ECB policy and negative for the euro after the Eurozone Sep PPI eased to -3.4% y/y from -2.3% y/y in Aug, right on expectations.
The Eurozone Oct composite PMI was revised upward by +0.3 to 50.0 from the previously reported 49.7.
German Sep factory orders rose +4.2% m/m, stronger than expectations of +1.5% m/m.
ECB Vice President Guindos said global economic output would be weaker, price pressure would be stronger, and established trade flows would be disrupted if US President-elect Trump implemented the kinds of import tariffs he threatened during his campaign.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 16% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) today is up sharply by +1.69%. The yen today tumbled to a 3-1/4 month low against the dollar. Today’s surge in T-note yields is hammering the yen as President-elect Trump’s economic policy is seen as more expansionary and inflationary, making it less likely the Fed will be able to cut interest rates aggressively. Also, today’s +2% rally in the Nikkei Stock Index to a 3-week high reduced the safe-haven demand for the yen.
The Japan Oct Jibun Bank services PMI was revised upward by +0.4 to 49.7 from the previously reported 49.3.
December gold (GCZ24) today is down -78.10 (-2.84%), and December silver (SIZ24) is down -1.630 (-4.98%). Precious metals today are plunging, with gold and silver falling to 3-week lows. The election of Republican candidate Trump as US president has pushed the dollar and T-note yields sharply higher and fueled the long liquidation of precious metals. Also, today’s rally in the S&P 500 to a new record high has curbed safe-haven demand for precious metals. Silver prices are also being hammered by speculation that President-elect Trump’s high tariff policies will slow global trade and economic growth, thus undercutting the demand for industrial metals.
However, expectations for the Fed to cut interest rates by -25 bp on Thursday supported precious metals prices. Also, the ongoing hostilities in the Middle East continue to boost safe-haven demand for precious metals. In addition, silver garnered support from today’s upward revision to the Eurozone Oct composite PMI and the stronger-than-expected German Sep factory orders reports, which were positive factors for industrial metal demand.
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.
