The dollar index (DXY00) today is up by +0.15%. The dollar is climbing today due to higher T-note yields, which have strengthened the dollar's interest rate differentials. Weakness in stocks today has also boosted liquidity demand for the dollar. The dollar fell back from its best level after the University of Michigan US Sep consumer sentiment index fell more than expected to a 4-month low.
Limiting the upside in the dollar are the increased expectations for Fed easing through year-end. The dollar is also being undercut by concerns over Fed independence, which could prompt foreign investors to dump dollar assets as President Trump attempts to fire Fed Governor Cook, and by Stephen Miran's intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors.
The University of Michigan’s US Sep consumer sentiment index fell -2.8 to a 4-month low of 55.4, weaker than expectations of 58.0.
The University of Michigan Sep 1-year inflation expectations were unchanged from Aug at +4.8%, right on expectations. However, the Sep 5-10 year inflation expectations unexpectedly increased to +3.9% from +3.5% in Aug, higher than expectations of a decline to +3.4%.
The markets are pricing in a 100% chance of a -25 bp rate cut and a 10% chance of a 50 bp rate cut at the upcoming FOMC meeting on Sep 16-17. After the fully expected -25 bp rate cut at the Sep 16-17 meeting, the markets are discounting a 93% chance of a second -25 bp rate cut at the Oct 28-29 meeting. The markets are now pricing in an overall -71 bp rate cut in the federal funds rate by year-end to 3.62% from the current 4.33% rate.
EUR/USD (^EURUSD) today is down by -0.13%. The euro is under pressure today from a stronger dollar. Also, signs that the Russian-Ukrainian war will continue are undercutting the euro after Russia said today that negotiations with Ukraine are on "pause."
Losses in the euro are limited due to central bank divergence, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly three times by the end of this year.
Escalation of geopolitical risks in Europe is bearish for the euro after Poland on Wednesday shot down drones that crossed into its territory during Russia's latest air strike on Ukraine, calling it an "act of aggression."
ECB Governing Council member and Bundesbank President Nagel said, "The present interest rates are appropriate if inflation develops as projected. So, unless there's any other significant development, there's no need to take action soon."
ECB Governing Council member Villeroy de Galhau said, "Nothing is pre-determined in advance, but it is absolutely possible there is another rate cut at the coming ECB meetings, as several of us, including myself, underlined the downward risks to inflation in the near future."
Swaps are pricing in a 4% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) today is up by +0.29%. The yen came under pressure today after US Treasury Secretary Bessent and Japanese Finance Minister Kato reaffirmed in a joint statement their basic commitment to let markets determine currency exchange rates, which reduces the chance the BOJ will intervene in forex markets to support the yen. Also, today's rally in the Nikkei Stock Index to a new record high has reduced safe-haven demand for the yen. Losses in the yen accelerated today as T-note yields rose.
The yen is being undercut by political uncertainty in Japan after Japanese Prime Minister Ishiba resigned following two election results that stripped Japan's ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy.
Japan's July industrial production was revised upward to -1.2% m/m from the previously reported -1.6% m/m.
US Treasury Secretary Bessent and Japanese Finance Minister Kato reaffirmed in a joint statement their basic commitment to let markets determine currency exchange rates and not to target them for a competitive advantage. They also said currency intervention should be reserved for dealing with excess volatility of disorderly movements in the forex market.
December gold (GCZ25) today is up +15.50 (+0.42%), and December silver (SIZ25) is up +0.631 (+1.50%). Precious metal prices are moving higher today, with Dec silver posting a contract high and nearest-futures (U25) posting a 14-year high.
Precious metals are climbing after this week's US economic news showed the labor market weakening and price pressures relatively contained, which cemented expectations for at least a 25 bp rate cut by the Fed at next week's FOMC meeting. The markets are also pricing in roughly three Fed rate cuts by year-end, a bullish factor for precious metals. In addition, the escalation of geopolitical risks in Europe has also boosted safe-haven demand for precious metals after Poland on Wednesday shot down drones that crossed into its territory during Russia's latest air strike on Ukraine, calling it an "act of aggression."
Gold buying from China's central bank is also supportive for gold prices after the PBOC boosted its gold purchases by +0.06 million troy ounces in August to 74.02 million troy ounces, marking the tenth consecutive month the central bank has increased its gold reserves.
Gold prices continue to receive support from uncertainty tied to US tariffs and geopolitical risks. Also, political uncertainty in France and Japan is driving demand for gold as a safe-haven asset. French Prime Minister Bayrou resigned after losing a confidence vote in parliament on Monday. Also, Japanese Prime Minister Ishiba resigned following two election results that stripped Japan's ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 2.25-year high on Wednesday, and silver holdings in ETFs rose to a 3-year high last Wednesday.
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.
