The dollar index (DXY00) on Tuesday fell by -0.43% and posted a 2-1/2 week low. Long liquidation weighed on the dollar ahead of the results of Tuesday’s US presidential election, which is too close to call. Also, Tuesday’s US Sep trade deficit was wider than expected, a negative factor for Q3 GDP and the dollar. The dollar garnered some support from Tuesday’s news that showed the US Oct ISM services index unexpectedly rose to a 2-1/4 year high.
The US Sep trade deficit was -$84.4 billion, wider than expectations of -$84.0 billion and the largest deficit in nearly 2-1/2 years, a negative factor for Q3 GDP.
The US Oct ISM services index unexpectedly rose +1.1 to 56.0, stronger than expectations of a decline to 53.8 and the strongest pace of expansion in 2-1/4 years.
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) Tuesday rose by +0.46% and posted a 3-week high. Tuesday’s dollar weakness boosted the euro. Also, Tuesday’s better-than-expected Eurozone economic news supported the euro after France's September manufacturing production fell less than expected.
French Sep manufacturing production fell -0.8% m/m, a smaller decline than expectations of -1.3% m/m.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 15% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.47%. The yen on Tuesday rallied to a 1-1/2 week high against the dollar. The yen’s upside was limited after the 10-year JGB bond yield fell to a 3-1/2 week low Tuesday, weakening the yen’s interest rate differentials. Also, dovish comments were made on Tuesday by Japan's Democratic Party for the People leader Tamaki, who undercut the yen when he suggested that the BOJ keep monetary policy steady and not raise interest rates. In addition, higher T-note yields Tuesday were bearish for the yen.
Japan's Democratic Party for the People leader Tamaki said that trying to move currencies with short-term BOJ policy is superficial, and the central bank should keep monetary policy unchanged for some time.
December gold (GCZ24) Tuesday closed up +3.50 (+0.13%), and December silver (SIZ24) closed up +0.166 (+0.51%). Precious metals recovered from early losses on Tuesday and settled slightly higher. Tuesday’s fall in the dollar to a 2-1/2 week low was bullish for precious metals. Also, political uncertainty from Tuesday's US presidential election is boosting safe-haven demand for precious metals as the election is considered a toss-up, and the results may not be known for days. In addition, expectations for the Fed to cut interest rates by -25 bp on Thursday boosted demand for precious metals as a store of value. Finally, the ongoing hostilities in the Middle East continue to boost safe-haven demand for precious metals.
Silver has carryover support from Tuesday’s rally in copper prices to a 3-week high after the China Oct Caixin services PMI and the US Oct ISM services index rose more than expected, positive factors for industrial metals demand.
Precious metals prices are being undercut by strength in stocks, which curbed safe-haven demand. Also, higher T-note yields on Tuesday were bearish for precious metals.
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.
