The dollar index (DXY00) on Wednesday fell by -0.04% and posted a 2-week low. Wednesday’s decline in bond yields undercut the dollar as the 10-year T-note yield fell to a 2-week low. Also, strength in stocks curbed liquidity demand for the dollar. Losses in the dollar were limited after U.S. Sep PPI rose more than expected, a hawkish factor for Fed policy. Also, the Sep 19-20 FOMC meeting minutes were slightly hawkish and bullish for the dollar.
Wednesday’s U.S. producer price report was stronger than expected and bullish for the dollar. Sep PPI final demand rose +0.5% m/m and +2.2% y/y, stronger than expectations of +0.2% m/m and +1.6% y/y. Also, Sep PPI ex-food and energy rose +0.3% m/m and +2.7% y/y, stronger than expectations of +0.2% m/m and +2.3% y/y.
The Sep 19-20 FOMC meeting minutes stated, "Participants generally judged that with the stance of monetary policy in restrictive territory, risks to the achievement of the committee's goals had become more two-sided." The minutes also noted that "a majority" of Fed officials saw one more rate increase "would likely be appropriate," while "some" said "no further increases would be warranted."
Fed comments on Wednesday were mixed for the dollar. On the negative side, Fed Governor Waller said the Fed is finally getting very good inflation we wanted and is in a position to "watch and see" on interest rates. Also, San Francisco Fed President Daly said tighter financial conditions may mean the Fed "doesn't have to do as much" on interest rates.
On the bullish side, Fed Governor Bowman said, despite recent improvements, "inflation remains well above the FOMC's 2% target. Domestic spending has continued at a strong pace, and the labor market remains tight. This suggests that the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC's goal."
EUR/USD (^EURUSD) on Wednesday rose by +0.07% and posted a 2-week high. Dollar weakness Wednesday was supportive of the euro. Also, an increase in the ECB’s monthly consumer expectations for August is hawkish for ECB policy and bullish for EUR/USD. The euro fell back from its best levels on dovish comments from ECB Governing Council member and Bundesbank President Nagel, who said “pausing could be an option” for the ECB at its next policy meeting later this month.
The ECB’s Aug 1-year CPI expectations rose +0.1 to 3.5%, and the Aug 3-year CPI expectations rose +0.1 to 2.5%.
USD/JPY (^USDJPY) on Wednesday rose by +0.31%. The yen on Wednesday fell moderately on reduced safe-haven demand after the Nikkei Stock rallied to a 1-week high. Also, a decline in Japanese government bond yields weighed on the yen after the 10-year JGB bond yield fell to a 1-week low of 0.766%. In addition, weak economic news undercut the yen after Japan Sep machine tool orders fell for the ninth consecutive month. Losses in the yen were limited due to a decline in T-note yields, which is bullish for the yen.
Japan Sep machine tool orders fell -11.2% y/y, the ninth consecutive month machine tool orders have declined.
December gold (GCZ3) on Wednesday closed +12.00 (+0.64%), and Dec silver (SIZ23) closed +0.180 (+0.82%). Precious metals prices on Wednesday rallied for the fourth consecutive session, with gold posting a 1-1/2 week high and silver posting a 1-week high. A decline in global bond yields Wednesday was supportive of precious metals. Also, concern that the Middle East turmoil may spread boosted safe-haven demand for precious metals after Hezbollah militants launched missiles into Israel from Lebanon. In addition, Wednesday’s stronger-than-expected U.S. Sep PPI report boosted demand for gold as an inflation hedge.
On the negative side, strength in stocks on Wednesday curbed the safe-haven demand for precious metals. Also, the Sep19-20 FOMC meeting minutes were slightly hawkish and bearish for metals as "a majority" of Fed officials saw one more rate increase "would likely be appropriate."
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.
