The dollar index (DXY00) Wednesday rallied sharply to a 4-month high and finished up by +1.58%. The dollar soared Wednesday 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, which is a bullish factor for the dollar. Also, Wednesday’s jump in the 10-year T-note yield to a 4-month high strengthened the dollar’s interest rate differentials.
The markets are discounting the chances at 99% for a -25 bp rate cut at Thursday’s FOMC meeting and at 0% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Wednesday tumbled to a 4-1/4 month low and finished down by -1.77%. The main bearish factor for the euro on Wednesday was the surge in the dollar. The euro was also under pressure because of 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 22% for a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Wednesday rose sharply by +1.90%. The yen on Wednesday tumbled to a 3-1/4 month low against the dollar. Wednesday’s surge in T-note yields hammered 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, Wednesday’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) Wednesday closed down -73.40 (-2.67%), and December silver (SIZ24) closed down -1.444 (-4.41%). Precious metals plunged on Wednesday, with gold and silver falling to 3-week lows. The election of Republican candidate Trump as US president pushed the dollar and T-note yields sharply higher and fueled the long liquidation of precious metals. Also, Wednesday’s rally in the S&P 500 to a new record high 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 Wednesday’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.
