The dollar index (DXY00) on Wednesday rose by +0.36% and posted a 9-3/4 month high. The dollar found support from Wednesday’s stronger-than-expected U.S. Aug capital goods new orders report, which helped push the 10-year T-note yield to a 16-year high and strengthened the dollar’s interest rate differentials. Also, a slump in the S&P 500 to a 3-3/4 month low boosted the liquidity demand for the dollar. In addition, weakness in the euro and the yen supported the dollar as the euro fell to an 8-1/2 month low against the dollar, and the yen tumbled to an 11-month low against the dollar.
Wednesday’s U.S. economic news was supportive for the dollar after Aug capital goods new orders nondefense ex-aircraft and parts rose +0.9% m/m, stronger than expectations of +0.1% m/m and the biggest increase in 7 months.
Dovish comments Wednesday from Minneapolis Fed President Kashkari were bearish for the dollar when he said a government shutdown and a prolonged auto strike may slow the U.S. economy, which would mean the Fed "would have to less with monetary policy to bring inflation back down to 2% because the government shutdown or the auto strike may slow the economy for us."
EUR/USD (^EURUSD) on Wednesday fell by -0.58% and dropped to an 8-1/2 month low. Dollar strength on Wednesday weighed on the euro. Also, the action by five German economic institutes to downgrade their German 2023 GDP projections to contraction from expansion is bearish for EUR/USD. In addition, weaker-than-expected measures of consumer confidence in France and Germany undercut the euro after the France Sep consumer confidence indicator fell to a 4-month low and the German Oct GfK consumer confidence index fell to a 6-month low.
Reuters reported that five German economic institutes downgraded their German 2023 GDP projection to a contraction of -0.6% from a previous projection of an expansion of +0.3%.
ECB Executive Board member Elderson said interest rates haven't necessarily reached their high point even after a tenth straight hike this month.
Eurozone Aug M3 money supply fell a record -1.3% y/y, weaker than expectations of -1.0% y/y.
The German Oct GfK consumer confidence index fell -0.9 to a 6-month low of -26.5, weaker than expectations of -26.0.
The French Sep consumer confidence indicator fell -2 to a 4-month low of 83, weaker than expectations of 84.
USD/JPY (^USDJPY) on Wednesday rose by +0.34%. The yen on Wednesday extended this week’s losses and fell to an 11-month low against the dollar. Higher T-note yields Wednesday weighed on the yen. Also, central bank divergence continues to undercut the yen, with the BOE, ECB, and the Fed all raising interest rates while the BOJ maintains record-low interest rates.
Wednesday’s Japanese economic news supported the yen after the Japan Jul leading index CI was revised upward by +0.6 to108.2 from the previously reported 107.6.
October gold (GCV3) on Wednesday closed -29.30 (-1.54%), and Dec silver (SIZ23) closed -0.472 (-2.03%). Precious metals prices on Wednesday extended this week’s losses, with gold falling to a 6-1/2 month low and silver posting a 1-1/2 week low. Wednesday’s rally in the dollar index to a 9-3/4 month high was bearish for metals prices. Also, speculation the Federal Reserve will keep interest rates higher for longer is undercutting metals prices. In addition, gold prices are also being weighed down by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Tuesday. Silver prices also saw some pressure after German economic institutes downgraded their German 2023 GDP projection to a contraction of -0.6% from a previous projection of an expansion of +0.3%, a negative factor for industrial metals demand.
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.
