The dollar index (DXY00) on Wednesday fell by -0.06% and posted a 1-week low. The shutdown of the US government on Wednesday weighed on the dollar. The dollar added to its losses on Wednesday on weakness in the US labor market, following the unexpected contraction of the September ADP employment change for a second consecutive month. The weak labor market news also boosted the chances of a Fed rate cut at the October 28-29 FOMC meeting to 100% in the swaps market, a negative factor for the dollar. The dollar recovered from its worst levels on Wednesday after the Sep ISM manufacturing index rose more than expected to a 7-month high.
The US Sep ADP employment change unexpectedly fell -32,000, weaker than expectations of a +51,000 increase and the largest decline in 2.5 years. Also, Aug ADP employment was revised lower to -3,000 from the previously reported +54,000.
The US Sep ISM manufacturing index rose +0.4 to a 7-month high of 49.1, stronger than expectations of 49.0. The Sep ISM price paid sub-index fell -1.8 to an 8-month low of 61.9, weaker than expectations of 62.7.
The markets are pricing in a 100% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Wednesday rose by +0.02% and posted a 1-week high. Wednesday’s dollar weakness supported modest gains in the euro. Also, an upward revision to the Eurozone Sep S&P manufacturing PMI was positive for the euro. In addition, the acceleration of Eurozone consumer prices in Wednesday’s Sep CPI report is hawkish for ECB policy and bullish for the euro.
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 Eurozone Sep S&P manufacturing PMI was revised upward by +0.3 to 49.8 from the previously reported 49.5.
Eurozone Sep CPI rose +2.2% y/y from +2.0% y/y in Aug, right on expectations. Sep core CPI was unchanged from Aug at +2.3% y/y, right on expectations.
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 fell by -0.55%. The yen rallied to a 2-week high against the dollar on Wednesday after the closure of the US government boosted safe-haven demand for the yen. Positive Japanese economic news was also bullish for the yen after the Japan Q3 Tankan large manufacturing sentiment index rose, and the Japan Sep S&P manufacturing PMI was revised upward. The yen added to its gains on Wednesday after T-note yields declined on the weaker-than-expected US Sep ADP employment report.
The Japan Q3 Tankan large manufacturing sentiment index rose +1 to 14, right on expectations.
The Japan Sep S&P manufacturing PMI was revised upward by +0.1 to 48.5 from the previously reported 48.4.
December gold (GCZ25) on Wednesday closed up +24.30 (+0.63%), and December silver (SIZ25) closed up +1.039 (+2.23%). Precious metal prices moved higher on Wednesday, with Dec gold posting a new contract high and nearest future (V25) posting a record high of $3,891.90 a troy ounce. Also, Dec silver posted a contract high, and nearest-futures (V25) silver posted a 14-year high.
Precious metals rallied on Wednesday after the dollar index fell to a 1-week low. Also, Wednesday’s shutdown of the US government has boosted safe-haven demand for precious metals. Gains in precious metals accelerated on Wednesday after the US ADP employment change unexpectedly contracted for a second consecutive month, knocking T-note yields lower and boosting the chances of a Fed rate cut at next month’s FOMC meeting to 100%, according to swaps markets —a bullish factor 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.
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.
