The dollar index (DXY00) Tuesday rose by +0.06% and posted a fresh 2-1/2 month high. Higher T-note yields Tuesday supported modest gains in the dollar. Also, Tuesday’s news that showed that the Oct Richmond Fed manufacturing survey rose to a 4-month high was bullish for the dollar. In addition, dovish ECB comments Tuesday from ECB President Lagarde and ECB Governing Council member Rehn knocked the euro down to a 2-1/2 month low and benefited the dollar.
The US Oct Richmond Fed manufacturing survey rose +7 to a 4-month high of -14, stronger than expectations of -17.
The markets are discounting the chances at 92% 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) Tuesday fell by -0.13% and posted a new 2-1/2 month low. Tuesday’s Eurozone economic news weighed on the euro after Eurozone Sep new car registrations fell for a second month. Losses in the euro accelerated Tuesday on dovish comments from ECB President Lagarde and ECB Governing Council member Rehn. Losses in the euro were limited by hawkish comments from ECB Governing Council member Escriva, who said he sees interest rates remaining higher than they were before the pandemic or Ukraine war.
Eurozone Sep new car registrations fell -6.1% y/y to 809,000 units.
ECB President Lagarde said the direction of travel of interest rates in the Eurozone is clear as inflation numbers are relatively assuring, and wage growth is starting to abate now.
ECB Governing Council member Rehn said, "The growth outlook in the Eurozone has weakened quite clearly in the past few months, which could also increase disinflationary pressures."
ECB Governing Council member Escriva said that while interest rates in the Eurozone are likely to go lower, "they will still be higher than those we saw before the pandemic or the war in Ukraine."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 47% chance of a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.15%. The yen on Tuesday added to Monday’s losses and posted a new 2-1/2 month low against the dollar. The yen remains under pressure on recent BOJ comments that suggest that BOJ officials see little need to rush into raising interest rates. Also, higher T-note yields Tuesday undercut the yen.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 1% for the October 30-31 meeting and at 20% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) Tuesday closed up +20.90 (+0.76%), and December silver (SIZ24) closed up +0.963 (+2.83%). Precious metals on Tuesday posted moderate gains, with Dec gold climbing to a new contract high and nearest-futures (V24) soaring to an all-time high of $2,745.80 an ounce. Also, Dec silver posted a contract high, and nearest-futures (V24) posted a 12-year high. Precious metals continue to see strong safe-haven demand from Middle East tensions and uncertainty regarding next month's US presidential election. Demand for gold as a store of value is also strong on expectations that whoever wins next month’s US presidential election, fiscal spending will climb and boost the budget deficit. In addition, dovish comments Tuesday from ECB President Lagarde were bullish for precious metals when she said the direction of travel of interest rates in the Eurozone is clear. Finally, fund buying of gold supports gold prices as long gold positions in ETFs rose to an 8-1/2 month high Monday. Precious metals fell back from their best levels Tuesday after the dollar index rose to a 2-1/2 month high.
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.
