The dollar index (DXY00) today is down by -0.05%. The dollar today retreated from a 1-3/4 month high and turned lower after US weekly jobless claims jumped to a 14-month high, a dovish factor for Fed policy. The dollar today initially moved higher after US consumer prices rose more than expected, a hawkish factor for Fed policy. Also, the weakness in stocks today has boosted some liquidity demand for the dollar.
US weekly initial unemployment claims increased by +33,000 to a 14-month high of 258,000, showing a weaker labor market than expectations of 230,000.
US Sep CPI eased to +2.4% y/y from +2.5% y/y in Aug, stronger than expectations of +2.3% y/y. Also, Sep CPI ex-food and energy unexpectedly strengthened to +3.3% y/y from +3.2% y/y in Aug, stronger than expectations of no change at +3.2% y/y.
The markets are discounting the chances at 93% 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 recovered from a 1-3/4 month low and moved slightly higher after the dollar weakened on the weekly US jobless claims report. The euro also garnered support on today’s Eurozone economic news that showed German Aug retail sales rose by the most in 5 months. In addition, today’s increase in the 10-year German bund yield to a 5-week high strengthens the euro’s interest rate differentials.
German Aug retail sales rose 1.6% m/m, the largest increase in 5 months.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the October 17 meeting and 100% for that -25 bp rate cut at the December 12 meeting.
USD/JPY (^USDJPY) today is down by -0.55%. The yen today recovered from a 1-3/4 month low against the dollar and moved higher after Japanese Sep producer prices rose more than expected, a hawkish factor for BOJ policy. The yen added to its advance on hawkish comments from BOJ Deputy Governor Himino, who said the BOJ will continue to raise interest rates if the economy performs in line with its projections. In addition, lower T-note yields today are supportive of the yen.
Japan's Sep PPI was unch m/m and +2.8% y/y, stronger than expectations of -0.3% m/m and +2.3% y/y.
BOJ Deputy Governor Himino said if the outlook for the economy and inflation is realized, "the BOJ will accordingly continue to raise the policy interest rate."
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at +24% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) today is up +17.10 (+0.65%), and December silver (SIZ24) closed up +0.400 (+1.30%). Precious metals today are moderately higher. The dollar’s weakness today is bullish for metals. Today’s increase in inflation expectations has boosted demand for gold as a store of value after the US 10-year breakeven inflation rate rose to a 3-1/4 month high. Precious metals also have continued safe-haven demand from Middle East tensions, with the markets awaiting Israel’s response to last Tuesday’s missile barrage from Iran.
Hawkish comments today from BOJ Deputy Governor Himino undercut precious metals when he said the BOJ will continue to raise interest rates if the economy performs in line with its projections. Also, today’s stronger-than-expected US Sep CPI report may keep the Fed from aggressively cutting interest rates, a negative factor for 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.
