The dollar index (DXY00) today is up by +0.07% at a 1-week high. Weakness in the British pound today is a supportive factor for the dollar after a weaker-than-expected UK Sep CPI report knocked (GBP/USD) down to a 1-week low. The dollar also has carryover support from Monday, when US-China trade tensions eased after President Trump said, "I think we're going to be fine with China."
Gains in the dollar are limited as 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 and the more likely the Fed will have to cut interest rates.
The markets are pricing in a 97% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) today is down by -0.05% at a 1-week low. Dollar strength today is undercutting the euro. Also, the budget impasse in France is weighing on the euro. Hawkish comments today from ECB Vice President Guindos limited losses in the euro when he said the current ECB interest-rate level is "adequate."
The euro has underlying strength from central bank divergence, with the Fed expected to continue cutting interest rates while the ECB is nearing the end of its rate-cutting cycle.
ECB Vice President Guindos said, "The current ECB interest-rate level is adequate as the path forward for inflation looks positive," and risks to the outlook for consumer-price growth are balanced.
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 up by +0.01%. The yen is little changed today. Japanese trade news today was supportive of the yen after Japan's September exports and imports increased. Gains in the yen are limited due to concerns that new Japanese Prime Minister Takaichi will advocate for a less hawkish monetary policy, which would be a bearish factor for the yen. Also, higher T-note yields today are bearish for the yen.
Japanese trade news was supportive of the yen. Japan Sep exports rose +4.2% y/y, the largest increase in seven months, but weaker than expectations of +4.4% y/y. Sep imports rose +3.3% y/y, stronger than expectations of +0.6% y/y and the biggest increase in eight months.
December COMEX gold (GCZ25) today is down -30.90 (-0.75%), and December COMEX silver (SIZ25) is up +0.371 (+0.78%). Gold and silver prices are mixed today, with gold sliding to a 1-week low. Today's rally in the dollar index to a 1-week high is bearish for metals. Also, the easing of US-China trade tensions has sparked massive, long liquidation pressure over the past two sessions in precious metals after the recent rally pushed gold and silver prices to record highs last week. Selling in precious metals intensified after President Trump predicted that a meeting next week with Chinese President Xi Jinping would yield a "good deal" on trade.
Gold and silver prices rallied to record highs last week as they extended their two-month-long parabolic rally. Precious metals continue to receive safe-haven support due to the ongoing US government shutdown, uncertainty tied to US tariffs, geopolitical risks, central bank buying, US-China trade tensions, and President Trump's attempts to undercut Fed independence. 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 Tuesday, and silver holdings in ETFs rose to a 3.25-year high on the same day.
