The dollar index (DXY00) today is up by +0.02%. The dollar recovered from early losses and is slightly higher after the release of the stronger-than-expected US Aug new home sales report. The dollar today initially moved lower due to the strength in the Chinese yuan, which rallied to a 16-month high today on the heels of government actions this week to boost stimulus measures. Also, strength in the euro is undercutting the dollar after EUR/USD climbed to a 14-month high today on hawkish comments from ECB Governing Council member Knot.
US Aug new home sales fell -4.7% m/m to 716,000, a smaller decline than expectations of a decline to 700,000.
The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and a 59% chance for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) today is up by +0.03% and climbed to a 14-month high. Today's hawkish comments from ECB Governing Council member Knot boosted the euro when he said he doesn’t see interest rates returning to the extremely low levels before the pandemic. Also, central bank divergence is lifting the euro, with the ECB seen cutting rates by only 25 bp more this year whereas the Fed is expected to cut rates by 50 bp before year-end. The euro fell back from its best levels today after the dollar recovered from early losses on the better-than-expected US Aug new home sales report.
ECB Governing Council member Knot said, "I don't expect interest rates to return to the extremely low levels we saw before the pandemic," and he expects gradual interest-rate cuts "in the near future" and in the first half of next year.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 60% for the October 17 meeting and 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) today is up by +0.61%. The yen today is moderately lower and is just above Tuesday’s 3-week low against the dollar. The yen is falling on negative carryover from Tuesday when BOJ Governor Ueda signaled that the BOJ is in no rush to raise interest rates. Also, higher T-note yields today are weighing on the yen. Today’s stronger-than-expected Japan Aug PPI services prices report was hawkish for BOJ policy and supportive of the yen.
Japan Aug PPI services prices rose +2.7% y/y, unchanged from July and slightly stronger than expectations of +2.6% y/y.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and a +12% chance for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) today is up +13.40 (+0.50%), and December silver (SIZ24) is up +0.035 (+0.11%). Precious metals today are moderately higher, with Dec gold posting a new contract high and silver posting a 3-3/4 month high. Precious metals are climbing today as recent weak US economic data bolsters the case for additional Fed interest rate cuts, which has boosted demand for gold as a store of value. In addition, fund buying of gold has supported gold prices as long gold positions in ETFs rose to a 7-1/2 month high Tuesday. Silver prices found support from today’s better-than-expected US Aug new home sales report, a supportive factor for industrial metals demand. Higher global bond yields today are limiting gains in 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.
