The dollar index (DXY00) on Thursday rose by +0.04% as it awaits Friday's US CPI report for September. The dollar garnered support from Thursday's existing US home sales report, which showed sales rose to a 7-month high. Also, higher T-note yields on Thursday strengthened the dollar's interest rate differentials. In addition, weakness in the yen benefited the dollar, after the yen fell to a 1.5-week low on Thursday on concerns that new Japanese Prime Minister Takaichi will advocate a less hawkish monetary policy. The dollar also garnered support on confirmation from the White House that President Trump will meet President Xi Jinping next Thursday in South Korea.
Gains in the dollar are limited by the ongoing US government shutdown. 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.
US Sep existing home sales rose +1.5% m/m to a 7-month high of 4.06 million, right on expectations.
The markets are pricing in a 99% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Thursday rose by +0.06%. The euro recovered from overnight losses and turned slightly higher on Thursday after the Eurozone Oct consumer confidence indicator survey unexpectedly rose to an 8-month high. The euro also has support 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. Limiting gains in the euro on Thursday was the stronger dollar. Also, the political crisis in France is weighing on the euro as the French government struggles to pass a budget.
The Eurozone Oct consumer confidence indicator survey unexpectedly rose +0.7 to an 8-month high of -14.2, stronger than expectations of a decline to -15.0.
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 Thursday rose by +0.37%. The yen tumbled to a 1.5-week low against the dollar on Thursday amid concerns that new Japanese Prime Minister Takaichi will advocate a less hawkish monetary policy, which would be bearish for the yen. Also, higher T-note yields on Thursday were negative for the yen.
December COMEX gold (GCZ25) on Thursday closed up +80.20 (+1.97%), and December COMEX silver (SIZ25) closed up +1.023 (+2.15%). Gold and silver prices rallied sharply on Thursday as precious metals rebounded after two days of heavy losses. The US late Wednesday announced sanctions on Rosneft PJSC and Lukoil PJSC, Russia's biggest oil producers, sending crude prices soaring by more than 5% on Thursday, increasing inflation expectations, and boosting demand for precious metals as a hedge against inflation.
Precious metals prices fell from their best levels on Thursday as US-China trade tensions eased slightly when the White House said President Trump will meet directly with President Xi Jinping next Thursday on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea.
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 amid the ongoing US government shutdown, uncertainty over US tariffs, geopolitical risks, central bank buying, US-China trade tensions, and President Trump's attempts to undermine 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.
