The dollar index (DXY00) Friday fell by -0.16% and posted a 14-month low. The dollar moved lower Friday after weaker-than-expected US personal income and spending reports knocked T-note yields lower, a bearish factor for the dollar. Also, Friday’s benign US Aug core PCE deflator report boosted the chances for additional Fed interest rate cuts, which was negative for the dollar. The dollar recovered from its worst levels after the University of Michigan US Sep consumer sentiment index was revised up to a 5-month high.
US Aug personal spending rose +0.2% m/m, slightly weaker than expectations of +0.3% m/m. Aug personal income rose +0.2% m/m, weaker than expectations of +0.4% m/m.
The US Aug core PCE price index rose +2.7% y/y, right on expectations.
The University of Michigan’s Sep US consumer sentiment index was revised upward by +1.1 to a 5-month high of 70.1, stronger than expectations of 69.4.
The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 55% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Friday fell by -0.11%. The euro was under pressure Friday after the Eurozone Sep economic confidence indicator fell more than expected. Also, price pressures fell after the Eurozone Aug inflation expectations eased, and France Sep CPI rose less than expected, which boosted the chances for an interest rate cut by the ECB at its October policy meeting, a negative factor for the euro.
The Eurozone Sep economic confidence indicator fell -0.3 to 96.2, weaker than expectations of 96.5.
The ECB's Eurozone Aug 1-year inflation expectations eased to a 3-year low of +2.7% from +2.8% in July, right on expectations. The Aug 3-year inflation expectations eased to +2.3% from +2.4% in July, right on expectations.
France Sep CPI (EU harmonized) eased to +1.5% y/y from +2.2% y/y in Aug, weaker than expectations of +1.9% and the smallest increase in 3 years.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 82% for the October 17 meeting and at 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) Friday fell sharply by -1.87%. The yen recovered from a 3-1/2 week low against the dollar Friday and rallied sharply after former defense minister Shigeru Ishiba, who is seen as supportive of the BOJ's plan to hike rates gradually, unexpectedly won the election for leader of the Liberal Democratic Party, defeating Sanae Takaichi, who had opposed interest rate hikes. The yen extended its gains after T-note yields fell on weaker-than-expected US economic reports. The yen on Friday initially moved lower after the September Tokyo CPI eased, a dovish factor for BOJ policy.
The Japan Aug leading index CI was revised lower to 109.3 from the previously reported 109.5.
The Japan Sep Tokyo CPI eased to +2.2% y/y from +2.6% y/y in Aug, right on expectations. Sep Tokyo CPI ex-fresh food and energy rose +1.6% y/y, unchanged from Aug and right on expectations.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at +13% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Friday closed down -16.80 (-0.99%), and December silver (SIZ24) closed down -0.525 (-1.62%). Precious metals Friday settled moderately lower. Precious metal retreated Friday after the US Aug core PCE price index rose +2.7% y/y, which was right on expectations but still well above the Fed’s 2% inflation target, dampening hopes that the Fed will cut rates again by more than 25 bp. The reduction in Fed rate cut expectations sparked long liquidation in precious metals that pushed gold prices to a record high Thursday and silver prices to an 11-year high.
Losses in precious metals were contained Friday after the dollar index tumbled to a 14-month low. Also, lower global bond yields on Friday are supportive of precious metals. In addition, Friday’s weaker-than-expected US personal income and spending reports were dovish for Fed policy. Finally, Friday’s Eurozone reports showed a decline in inflation expectations and weaker-than-expected French Sep CPI, which boosted the chances for further rate cuts by the ECB, a supportive factor for gold.
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.
