The dollar index (DXY00) today is down by -0.21% and posted a 1-week low. Dovish Fed comments today weighed on the dollar after Fed Governor Christopher Waller said the Fed can keep lowering interest rates to support a faltering labor market. Also, today’s economic news, which showed the October Philadelphia Fed business outlook survey fell more than expected to a 6-month low, was bearish for the dollar. In addition, the strength of the euro is undercutting the dollar, as EUR/USD climbed to a one-week high after French Prime Minister Lecornu survived two no-confidence votes.
Losses in the dollar are limited today after Richmond Fed President Tom Barkin said US productivity growth seems to be improving “significantly,” and after the Oct NAHB housing market index rose more than expected to a 6-month high.
The ongoing shutdown of the US government is bearish for the dollar. The longer the shutdown is maintained, the more likely the US economy will suffer, a negative factor for the dollar.
The US Oct Philadelphia Fed business outlook survey fell -36.0 to a 6-month low of -12.8, weaker than expectations of 10.0.
The US Oct NAHB housing market index rose +5 to a 6-month high of 37, stronger than expectations of 33.
Fed Governor Christopher Waller said the Fed can continue to lower interest rates in quarter-point increments to support a faltering labor market.
Richmond Fed President Tom Barkin said US productivity growth appears to be improving “significantly,” potentially mitigating any inflationary impacts from trade tariffs.
The markets are pricing in a 98% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) today is up by +0.21% at a 1-week high. The euro is climbing today as political risks in France eased after French Prime Minister Lecornu survived two no-confidence votes at France’s National Assembly. Hawkish ECB comments today also supported the euro after ECB Governing Council member Wunsch said the chances of additional ECB rate cuts have been receding. In addition, a weaker dollar today is positive for the euro.
ECB Governing Council member Wunsch said, “I would say that the probability that the ECB cuts interest rates again has been receding over the last few weeks or months.”
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) today is down by -0.07%. The yen rose to a 1-week high against the dollar today on hawkish comments from BOJ Board member Tamura, who called for raising interest rates due to increasing inflation risks. Gains in the yen are limited as today’s +1.27% rally in the Nikkei Stock Index curbed safe-haven demand for the yen. Also, today’s weaker-than-expected Japanese economic news on the Aug tertiary index and Aug core machine orders weighed on the yen. In addition, higher T-note yields today are negative for the yen.
The yen has been under pressure over the past week, as Japan’s governing coalition collapsed following talks between LDP leader Takaichi and Komeito leader Saito, which ended without an agreement being reached. The move makes it harder for Takaichi to garner the support needed to pass budgets or any meaningful legislation and could potentially lead to another election.
The Japan Aug tertiary industry index fell -0.4% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 5 months.
Japan Aug core machine orders unexpectedly fell -0.9% m/m, weaker than expectations of +0.5% m/m.
BOJ Board member Tamura said, “I believe the BOJ is now in the phase of deciding on raising its policy interest rate” as a weak yen intensifies upside risks for inflation, and the BOJ’s policy rate is still far away from the neutral rate.
December COMEX gold (GCZ25) today is up +77.30 (+1.84%), and December COMEX silver (SIZ25) is up +1.402 (+2.73%). Gold and silver prices are extending their parabolic rallies today, with Dec gold posting a new contract high and nearest-futures (V25) posting a new all-time high of $4,250.00 a troy ounce. Also, Dec silver posted a new contract high, and nearest-futures (V25) posted a new all-time high of $52.545 a troy ounce.
The escalation of US-China trade tensions is driving demand for safe-haven assets, including precious metals. Also, the ongoing US government shutdown has fueled demand for the metals as a safe haven. Gold prices added to their gains today on dovish comments from Fed Governor Christopher Waller, who said the Fed can keep lowering interest rates to support a faltering labor market.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and political turmoil in France and Japan. Also, President Trump’s attacks on Fed independence are boosting demand for gold. In addition, 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.
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 Wednesday, and silver holdings in ETFs rose to a 3.25-year high on Tuesday.
