The dollar index (DXY00) on Tuesday fell sharply by -1.50% and posted a 2-1/4 month low. The dollar sold off sharply Tuesday after U.S Oct consumer prices rose less than expected, bolstering the outlook that the Fed may be finished raising interest rates. The dollar extended its losses on dovish comments from Richmond Fed President Barkin, who signaled his support for a Fed pause.
U.S. Oct CPI eased to +3.2% y/y from +3.7% y/y in Sep, better than expectations of +3.3% y/y. Also, Oct CPI ex-food and energy eased to +4.0% y/y from +4.1% y/y in Sep, better than expectations of no change at 4.1% y/y and the smallest increase in more than two years.
Comments from Richmond Fed President Barkin were bearish for the dollar as they suggest he favors a continued pause on Fed rate hikes when he said the impact of higher rates may be lagged but with rates restrictive, we have time to monitor the economy.
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting an 88% chance for the FOMC to begin cutting rates at the April-30-May 1, 2024 FOMC meeting and a 155% chance for a -25 bp rate cut at the June 11-12, 2024 FOMC meeting.
EUR/USD (^EURUSD) on Tuesday rallied sharply by +1.75% and posted a 2-1/2 month high. The sharp selloff in the dollar Tuesday was bullish for the euro. Also, stronger-than-expected German investor confidence supported EUR/USD after the German Nov ZEW survey expectations of economic growth rose more than expected to an 8-month high.
The German Nov ZEW survey expectations of economic growth rose +10.9 to an 8-month high of 9.8, stronger than expectations of 5.0.
USD/JPY (^USDJPY) on Tuesday fell by -0.92%. The yen on Tuesday found support on the sharp decline in the dollar. Also, Tuesday's plunge in T-note yields sparked short covering in the yen as it rebounded from Monday’s 1-year low.
December gold (GCZ3) Tuesday closed up +16.30 (+0.84%), and Dec silver (SIZ23) closed up +0.774 (+3.46%). Precious metals prices Tuesday moved sharply higher. Tuesday’s plunge in the dollar index to a 2-1/4 month low was bullish for metals. Also, the sharp decline in global bond yields Tuesday supports precious metals. The larger-than-expected increase in Tuesday’s report on German Nov ZEW survey expectations of economic growth to an 8-month high supports industrial metals demand and silver prices.
On the bearish side, Tuesday’s sharp rally in stocks reduced safe-haven demand for precious metals and was bearish for metals prices. Also, a decline in inflation expectations curbed demand for gold as an inflation hedge after Tuesday's 10-year U.S. breakeven inflation rate fell to a 1-month low of 2.294%.
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.
