The dollar index (DXY00) on Wednesday rose by +0.32%. The dollar Wednesday posted moderate gains on a surge in the 10-year T-note yield to a 16-year high, strengthening the dollar’s interest rate differentials. Also, the slump in stocks Wednesday boosted the liquidity demand for the dollar. In addition, geopolitical risks in the Middle East increased safe-haven demand for the dollar after an explosion at a Gaza hospital that killed hundreds complicated diplomatic efforts to contain the Israeli-Hamas conflict.
Wednesday’s U.S. housing news was mixed for the dollar. Sep housing starts rose by +7.0% to 1.358 million units, which was weaker than expectations for an increase to 1.383 million. However, Sep building permits fell by -4.4% to 1.473 million units, slightly stronger than expectations for a larger decline to 1.453 million units.
Dovish comments Wednesday from Fed Governor Waller were bearish for the dollar when he said, "I believe we can wait, watch, and see how the economy evolves before making definitive moves on the path of the policy rate."
Wednesday’s Fed Beige Book was negative for the dollar, stating that "The near-term outlook for the economy was generally described as stable or having slightly weaker growth and labor market tightness continued to ease across the nation."
EUR/USD (^EURUSD) on Wednesday fell by -0.38%. The euro weakened Wednesday as a jump in T-note yields boosted the dollar. Also, dovish comments Wednesday from ECB Governing Council member Stournaras weighed on the euro when he said the turmoil in the Middle East had shifted the balance against any further tightening of ECB monetary policy.
Wednesday’s economic news was bearish for EUR/USD after Eurozone Aug construction output fell -1.1% m/m.
USD/JPY (^USDJPY) on Wednesday rose by +0.06%. The yen on Wednesday gave up an early advance and fell to a 2-week low against the dollar as higher T-note yields weighed on the yen. The yen Wednesday initially moved higher on a jump in 10-year JGB yield to a 10-year high of 0.820%. Also, comments Wednesday from former BOJ member Sakurai gave the yen a boost when he said the BOJ may scrap its negative interest rate policy by the end of the year to adjust the currently excessive level of monetary easing.
December gold (GCZ3) on Wednesday closed +32.60 (+1.68%), and Dec silver (SIZ23) closed +0.075 (+0.33%). Precious metals prices on Wednesday closed moderately higher, with gold climbing to a 2-1/2 month high and silver posting a 2-1/2 week high. Concerns about the escalation of the Israeli-Hamas conflict have boosted the safe-haven demand for precious metals as hopes for a diplomatic resolution to the conflict deteriorated after a deadly explosion at a Gaza hospital. Also, an increase in inflation expectations boosted demand for gold as an inflation hedge after the 10-year U.S. breakeven inflation rate Wednesday rose to a 2-3/4 month high. In addition, dovish comments from Fed Governor Waller gave precious metals a boost when he said he favors pausing Fed rate hikes.
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.
