The dollar index (DXY00) today is down by -0.04% as a rally in stocks curbs liquidity demand for the dollar. Hawkish Fed comments limited losses in the dollar. New York Fed President Williams said the Fed is "well positioned" to pull off a soft landing for the US economy, and St. Louis Fed President Musalem warned of easing monetary policy too quickly. Also, today’s news that the US Aug trade deficit fell to a 5-month low is supportive of the dollar.
Monday evening, St. Louis Fed President Musalem said, "Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late."
Fed Governor Kugler said the Fed should keep its focus on bringing inflation back to its 2% target, though with a "balanced approach" that avoids an "undesirable" slowdown in employment growth and economic expansion.
The US Aug trade deficit eased to a 5-month low of -$70.4 billion from -$78.9 billion in July, a smaller deficit than expectations of -$70.5 billion.
The markets are discounting the chances at 88% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) today is up by +0.02%. The euro today is slightly higher on the dollar's weakness. Also, today’s news that German Aug industrial production rose by the most in 2-3/4 years was bullish for the euro. Gains in the euro were limited by dovish ECB comments from ECB Executive Board member Elderson and ECB Governing Council member Nagel, who expressed support for the ECB to keep cutting interest rates.
German Aug industrial production rose +2.9% m/m, stronger than expectations of +0.8% m/m and the largest increase in 2-3/4 years.
ECB Executive Board member Elderson said the Eurozone economy is weaker than expected, and "if our projections that inflation will converge toward our 2% target in the second half of 2025 continue to be confirmed, the ECB will continue to gradually ease its restrictive policy stance."
ECB Governing Council member and Bundesbank President Nagel said "he's open to considering the possibility" of an ECB interest rate cut at next week's ECB meeting.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for the October 17 meeting and at 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) today is down by -0.02%. The yen today is modestly higher on news that showed Japan's labor cash earnings rose more than expected, a hawkish factor for BOJ policy. The yen also has safe-haven support from heightened Middle East tensions. However, gains in the yen are limited after the Japan Sep eco watchers outlook survey unexpectedly declined. Also, higher T-note yields today are bearish for the yen.
Japan Aug labor cash earnings rose +3.0% y/y, stronger than expectations of +2.9% y/y.
Japan Aug household spending fell -1.9% y/y, the biggest decline in 7 months but smaller than expectations of -2.6% y/y.
The Japan Sep eco watchers outlook survey unexpectedly fell -0.6 to 49.7, weaker than expectations of an increase to 50.5.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 2% for the October 30-31 meeting and at +23% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) today is down -8.90 (-0.33%), and December silver (SIZ24) is down -0.739 (-2.31%). Precious metals today are moving lower and dropped to 1-week lows. Higher global government bond yields today are weighing on precious metals. Also, hawkish Fed comments weighed on gold prices after New York Fed President Williams said the Fed is "well positioned" to pull off a soft landing for the US economy and St. Louis Fed President Musalem warned of easing monetary policy too quickly. Silver prices are also falling on negative carryover from a slide in copper prices today to a 2-week low after China’s economic planning agency failed to announce any new major stimulus measures.
Losses in precious metals today are limited as heightened Middle East hostilities have boosted safe-haven demand for precious metals, with the markets awaiting Israel’s response to last Tuesday’s missile barrage from Iran. Also, dovish comments from ECB Governing Council member and Bundesbank President Nagel boosted demand for gold as a store of value when he said "he's open to considering the possibility" of an ECB interest rate cut at next week's ECB meeting.
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.
