The dollar index (DXY00) today is down by -0.19%. The ongoing shutdown of the US government is bearish for the dollar as the shutdown enters its third day today. The longer the shutdown is maintained, the more likely the US economy will suffer, and GDP growth will stagnate. The dollar extended its losses today after the Sep ISM services index fell more than expected to a 4-month low. Losses in the dollar are contained on hawkish comments from Chicago Fed President Austan Goolsbee, who cautioned against the Fed front-loading too many interest rate cuts.
The US Sep S&P composite PMI was revised upward by +0.3 to 53.9 from the previously reported 53.6.
The US Sep ISM services index fell -2.0 to a 4-month low of 50.0, weaker than expectations of 51.7. The Sep ISM services price paid sub-index unexpectedly rose +0.2 to 69.4, higher than expectations of a decline to 68.0.
Chicago Fed President Austan Goolsbee cautioned against the Fed front-loading too many interest rate cuts, saying, "The uptick of inflation that we've been seeing, coupled with the jobs, payroll numbers deteriorating, has put the Fed in a bit of a sticky spot where you're getting deterioration of both sides of the mandate at the same time."
The markets are pricing in a 95% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) today is up by +0.26%. Today's weaker dollar is bullish for the euro. Also, hawkish comments today from ECB Governing Council member Wunsch gave the euro a boost when he said the ECB's current policy settings are appropriate to keep inflation in check. Gains in the euro are limited after Eurozone Sep producer prices contracted more than expected, a dovish factor for ECB policy.
The euro also has support from 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 two more times by the end of this year.
Eurozone Sep PPI fell -0.3% m/m and -0.6% y/y, weaker than expectations of -0.1% m/m and -0.4% y/y, with the -0.6% y/y fall the largest year-over-year decline in 9 months.
ECB Governing Council member Wunsch said that ECB policymakers have found the "perfect calibration" for interest rates and policy settings, which is appropriate to ensure that consumer prices rise in line with the 2% target in the medium term.
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 +0.12%. The yen is under pressure today after Japan's Aug jobless rate rose more than expected to a 13-month high, a dovish factor for BOJ policy. Also, dovish comments from BOJ Governor Ueda were bearish for the yen when he stressed the importance of keeping accommodative financial conditions, reducing expectations of a BOJ interest rate hike later this month. In addition, higher T-note yields today are weighing on the yen.
Losses in the yen are limited due to higher Japanese government bond yields after the 10-year GJG bond yield climbed to a 17-year high today at 1.675%. Short covering is also giving the yen a boost today ahead of Saturday's election for the next leader of the ruling Liberal Democratic Party.
The Japan Aug jobless rate rose +0.3 to a 13-month high of 2.6%, showing a weaker labor market than expectations of 2.4%.
The Japan Sep S&P composite PMI was revised upward by +0.2 to 51.3 from the previously reported 51.1.
December gold (GCZ25) today is up +32.20 (+0.84%), and December silver (SIZ25) is up +1.221 (+2.63%). Precious metal prices are rallying today but remain below the significant highs reached on Wednesday. Today's weaker dollar is bullish for the metals market. Also, today's shutdown of the US government for a third day has boosted safe-haven demand for precious metals. 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.
On Wednesday, nearest-futures (V25) gold prices rose to a record high of $3,891.90 a troy ounce, and nearest-futures (V25) silver rallied to a 14-year high. 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 96% 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 Thursday, and silver holdings in ETFs rose to a 3-year high on Wednesday.
