The dollar index (DXY00) on Wednesday rose by +0.65% and posted a 1.5-week high. The dollar rose on Wednesday, with positive carryover from Tuesday, when Fed Chair Powell offered no hints on whether he would support a rate cut at next month's FOMC meeting, signaling that the Fed may be less dovish than the markets have currently priced in. Also, hawkish comments from Chicago Fed President Austan Goolsbee supported the dollar when he said he could be less willing to support further Fed rate cuts. The dollar extended its gains today after US Aug new home sales unexpectedly jumped to a 3.5-year high.
US Aug new home sales unexpectedly jumped +20.5% m/m to a 3.5-year high of 800,000, versus expectations of a decline to 650,000.
Chicago Fed President Austan Goolsbee said he could be less willing to support further Fed rate cuts as inflation has been above the Fed's target and was "now heading the wrong way," and "we've still got a mostly steady and solid jobs market."
The markets are pricing in a 92% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Wednesday fell by -0.68%. Dollar strength on Wednesday weighed on the euro. The euro was also under pressure after the German Sep IFO business climate survey unexpectedly fell to a 4-month low.
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.
The German Sep IFO business climate survey unexpectedly fell -1.2 to a 4-month low of 87.7, versus expectations of an increase to 89.4.
ECB Executive Board member Cipollone said that "risks on inflation in the Eurozone are very balanced" and he doesn't see major threats to inflation in either direction, with interest rates currently well positioned.
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) on Wednesday rose by +0.83%. The yen tumbled to a 3-week low against the dollar on Wednesday on signs of weakness in Japanese manufacturing activity after the Japan Sep S&P manufacturing PMI contracted by the most in 6 months. Also, higher T-note yields on Wednesday weighed on the yen. On the positive side for the yen, Japan's Ministry of Finance announced plans to cut the issuance of long-term government debt for the second time this year.
Japan's Aug machine tool orders were revised upward to +8.5% y/y from the previously reported +8.1% y/y, the largest increase in 5 months.
The Japan Sep S&P manufacturing PMI fell -1.3 to a 6-month low of 48.4. The Sep S&P services PMI fell -0.1 to 53.0.
Japan's Ministry of Finance said it plans to cut the issuance of long-term government debt by 100 billion yen ($675 million) for the October and December debt auctions, marking the second time this year that the finance ministry has cut issuances for long maturities.
December gold (GCZ25) on Wednesday closed down -47.60 (-1.25%), and December silver (SIZ25) closed down -0.416 (-0.93%). Precious metal prices retreated on Wednesday as the dollar rallied to a 1.5-week high. Also, higher T-note yields on Wednesday weighed on precious metals. In addition, hawkish central bank comments weighed on gold after ECB Executive Board member Cipollone stated that ECB interest rates are appropriate, given "very balanced" inflation risks, and Chicago Fed President Austan Goolsbee indicated that he might be less willing to support further Fed rate cuts.
On Tuesday, Dec gold posted a contract high, and nearest-futures (U25) gold posted a new record high of $3,786.0 a troy ounce. Also, Dec silver climbed to a contract high, and nearest-futures (U25) posted a 14-year high. Precious metals have rallied sharply since last week's FOMC meeting, driven by the outlook for the Fed to continue cutting interest rates, which is boosting demand for precious metals as a store of value.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs and President Trump's attacks on Fed independence, 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. Finally, geopolitical risks and global trade tensions have boosted safe-haven demand for precious metals.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a nearly 3-year high on Tuesday, and silver holdings in ETFs rose to a 3-year high on the same day.
