The dollar index (DXY00) extended Monday’s gains and is up by +0.40% at a 1.5-week high. The dollar is climbing today on hawkish comments made by Kansas City Fed President Jeff Schmid on Monday evening, who said the Fed needs to continue pressing against inflation that has remained stubbornly high. Also, political uncertainty in France and Japan is undercutting the euro and yen to the benefit of the dollar.
The ongoing shutdown of the US government is bearish for the dollar as the shutdown entered its second week on Monday. The longer the shutdown is maintained, the more likely the US economy will suffer, and GDP growth will stagnate, a negative factor for the dollar.
Monday evening, Kansas City Fed President Jeff Schmid said, “With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and relieve price pressures in the economy.”
The markets are pricing in a 93% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) today is down by -0.42% and is holding just above Monday’s 1.5-week low. The euro is sliding today on signs of weakness in the Eurozone economy, following the unexpected decline in German August factory orders. Also, political turmoil in France is weighing on the euro after French Prime Minister Lecornu resigned following President Macron’s naming of a new cabinet, raising uncertainty about the Eurozone’s second-largest economy.
German Aug factory orders unexpectedly fell -0.8% m/m, weaker than expectations of +1.2% m/m.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) today is up by +0.44%. The yen extended Monday’s selloff today to a 6.25-month low against the dollar. The yen is retreating on concern that the election of Sanae Takaichi as the leader of Japan’s ruling Liberal Democratic Party, which makes her the likely new Japanese Prime Minister, will result in a slower timeline for the BOJ’s policy tightening. Takaichi’s surprise victory has tempered expectations that the BOJ may raise interest rates as soon as this month, while raising concerns about an increased debt supply due to her support for expanded financial stimulus.
Losses in the yen are limited after the Japan Aug leading index CI rose +1.3 to a 5-month high of 107.4, stronger than expectations of 107.1.
December gold (GCZ25) today is up +17.70 (+0.45%), and December silver (SIZ25) is down -0.528 (-1.09%). Precious metal prices are mixed today, with Dec gold posting a new contract high and nearest-futures (V25) gold posting an all-time high of $3,969.40 a troy ounce.
Precious metals are garnering support today as the US government shutdown entered its second week, boosting safe-haven demand for these metals. Also, political turmoil in France is boosting safe-haven demand for precious metals after French Prime Minister Lecornu resigned when President Macron named a new cabinet. In addition, demand for precious metals as a store of value is supporting prices after Sanae Takaichi, a proponent of easy fiscal and monetary policy, won Saturday’s election to become the leader of the ruling LDP party and is likely to become the new Japanese Prime Minister. Central bank buying if gold is underpinning gold prices after the People’s Bank of China (PBOC) added +0.04 million troy ounces of gold to its reserves in September, the 11th consecutive month the PBOC has boosted its gold reserves.
Today’s rally in the dollar index to a 1.5-week high is negative for precious metals. Also, hawkish comments from Kansas City Fed President Jeff Schmid were bearish for precious metals when he said the Fed needs to keep pressing against inflation that has remained stubbornly high. Silver prices are under pressure today due to signs of weakness in global industrial metals demand, following the unexpected decline in German August factory orders.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and global trade tensions. Also, President Trump’s attacks on Fed independence are boosting demand for gold, as he attempts to fire Fed Governor Cook. Additionally, Stephen Miran’s intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors contributes to this uncertainty.
Recent weaker-than-expected US economic news has bolstered the outlook for the Fed to keep cutting interest rates, a bullish factor for precious metals. The swaps market shows a 93% chance the Fed will cut the federal funds target range by 25 bp at the October 28-29 FOMC meeting.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Monday, and silver holdings in ETFs rose to a 3-year high last Wednesday.
