The dollar index (DXY00) on Monday fell slightly by -0.11%. The dollar Monday was undercut by a -3 bp decline in the 10-year T-note yield, which undercut the dollar’s interest rate differentials.
The dollar was also undercut by Monday’s weak U.S. homebuilder report. The NAHB U.S. housing market index fell by -5 points to a 5-month low of 45, much weaker than expectations for a -1 point drop to 49. The reduced confidence expressed by U.S. homebuilders suggests that home-building activity may weaken in the coming months.
The dollar saw underlying support from expectations for the FOMC to remain hawkish at the Tue/Wed FOMC meeting even though expectations are for the FOMC to refrain from another rate hike. The markets are expecting the FOMC this week to maintain a hawkish tone and remain open to one last rate hike since inflation and the economy have not yet slowed enough.
Looking ahead for the FOMC, the markets are discounting a 31% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting on November 1, and a 14% chance for that 25 bp rate hike at the following meeting on December 13. The markets are then expecting the FOMC to begin cutting rates in 2024 in response to an expected slowdown in the U.S. economy.
EUR/USD (^EURUSD) on Monday was little changed, while USD/JPY (^USDJPY) rose +0.10%. The Japanese markets were closed Monday but are looking forward to the Bank of Japan’s policy meeting on Friday.
October gold (GCV3) Monday rose by +7.30 (+0.38%), and Dec silver (SIZ23) rose by +0.112 (+0.48%). Precious metals Monday found support from the slightly lower dollar and the -3 bp decline in the 10-year T-note yield. However, silver was undercut by higher German and UK bond yields and fears of weaker global economic growth. Gold continues to be pressured by the liquidation pressures after long gold holdings in ETFs fell to a 3-1/3 year low last Thursday.
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.
