The dollar index (DXY00) Tuesday rose by +0.28% and posted a 3-1/2 week high. The dollar on Wednesday recovered from overnight losses and moved higher due to the jump in T-note yields. Also, Wednesday’s slump in stocks boosted the liquidity demand for the dollar. The dollar Wednesday initially moved lower after Fitch Ratings cut the sovereign credit rating of the U.S. by one level to AA+ from AAA.
Wednesday’s U.S. economic news was bullish for the dollar after the Jul ADP employment change rose +324,000, showing a stronger labor market than expectations of +190,000.
Fitch Ratings late Tuesday cut the sovereign credit rating of the U.S. by one level to AA+ from AAA, saying, "The rating downgrade of the U.S. reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades.”
EUR/USD (^EURUSD) Wednesday fell by -0.39% and dropped to a 3-1/2 week low. The euro Wednesday was under pressure from a stronger dollar. Also, a decline in European government bond yields Wednesday weakened the euro’s interest rate differentials.
USD/JPY (^USDJPY) on Wednesday fell by +0.01%. The yen Wednesday posted modest gains. Wednesday’s -2% sell-off in the Nikkei Stock Index boosted some safe-haven demand for the yen. Also, the jump in the 10-year Japanese JGB bond yield to a 9-year high of 0.632% strengthened the yen’s interest rate differentials. The yen gave back almost all its gains after the 10-year T-note yield jumped to an 8-1/2 month high.
October gold (GCV3) Wednesday closed down -3.7 (-0.19%), and Sep silver (SIU23) closed down -0.454 (-1.87%). Precious metals prices Wednesday closed moderately lower, with gold and silver posting 3-week lows. Wednesday’s rally in the dollar index to a 3-1/2 week high was bearish for metals. Also, the jump in T-note yields Wednesday was negative for precious metals. In addition, gold prices are under pressure from fund liquidation after long gold holdings in ETFs fell to a new 3-year low on Tuesday. The downside in precious metals was limited as the action by Fitch Ratings to downgrade the sovereign credit grade of the U.S. sparked a sell-off in equity markets that boosted the safe-haven demand for precious metals.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
