Key Takeaways
- The US Dollar Index (DXY) saw a slight increase, influenced by positive existing home sales data and rising T-note yields.
- Concerns about the ongoing US government shutdown and its potential economic impact are capping dollar gains.
- The Euro experienced a modest rise, supported by improved Eurozone consumer confidence, though a stronger dollar and political uncertainty in France posed headwinds.
- The Yen weakened against the dollar due to expectations of a less hawkish monetary policy under Japan’s new Prime Minister.
- Gold and silver prices surged, driven by increased inflation expectations following sanctions on Russian oil producers and safe-haven demand amid geopolitical risks and market uncertainty.
Dollar Index Edges Higher Amid Economic Data and Fed Expectations
The US Dollar Index (DXY) moved up by 0.04% on Thursday, as market participants awaited the September US CPI report scheduled for Friday. The dollar found support from the positive existing home sales data released on Thursday, which indicated a rise to a seven-month high. Higher Treasury note yields also contributed to the dollar’s strength by improving interest rate differentials.
💡 The yen’s decline to a 1.5-week low also benefited the dollar. This weakening of the yen stemmed from concerns that Japan’s new Prime Minister, Takaichi, might advocate for a less hawkish monetary policy. Additionally, confirmation from the White House that President Trump will meet President Xi Jinping in South Korea next Thursday provided some support to the dollar.
However, the ongoing US government shutdown continues to limit gains for the dollar. The longer the shutdown persists, the greater the potential negative impact on the US economy, which could increase the likelihood of the Federal Reserve cutting interest rates.
US Housing Market Shows Resilience
Existing home sales in the US for September increased by 1.5% month-over-month, reaching 4.06 million units, aligning with market expectations and marking a 7-month high.
📊 Market participants are largely pricing in a 99% probability of a 25 basis point rate cut at the upcoming FOMC meeting on October 28-29.
Euro Recovers Modestly Amid Mixed Signals
The EUR/USD pair rose by 0.06% on Thursday, recovering from earlier losses. The euro saw a slight uptick after the Eurozone’s consumer confidence indicator for October unexpectedly climbed to an 8-month high. Support for the euro also comes from the divergence in central bank policies, with the Federal Reserve expected to continue lowering interest rates while the European Central Bank is nearing the end of its rate-cutting cycle.
📍 Gains for the euro were tempered by a stronger US dollar and ongoing political instability in France, where the government is facing challenges in passing its budget.
The Eurozone’s consumer confidence indicator for October rose unexpectedly by 0.7 points to -14.2, reaching an 8-month high and surpassing the forecasted decline to -15.0.
📈 Swaps currently indicate a 1% chance of a 25 basis point rate cut by the ECB at its policy meeting on October 30.
Yen Weakens on Monetary Policy Concerns
The USD/JPY pair increased by 0.37% on Thursday, pushing the yen to a 1.5-week low against the dollar. This depreciation is attributed to concerns that the new Japanese Prime Minister, Takaichi, may pursue monetary policies that are less hawkish, which would be bearish for the yen. Higher Treasury note yields on Thursday also exerted downward pressure on the yen.
Precious Metals Rally on Inflation Concerns and Safe-Haven Demand
December COMEX gold futures closed up by 1.97% at $80.20, while December COMEX silver futures rose by 2.15% to $1.023 on Thursday. Gold and silver prices experienced a sharp rally, rebounding after two days of significant losses. The US imposition of sanctions on Rosneft PJSC and Lukoil PJSC, major Russian oil producers, late Wednesday sent crude oil prices soaring by over 5% on Thursday. This surge in oil prices heightened inflation expectations, thereby boosting demand for precious metals as a hedge against rising inflation.
⚡ Precious metals saw a slight pullback from their peaks on Thursday as US-China trade tensions eased modestly. The White House announced that President Trump would meet directly with President Xi Jinping next Thursday on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea. This diplomatic engagement offered a glimmer of de-escalation.
Gold and silver had previously reached record highs last week, extending a two-month parabolic rally. Precious metals continue to benefit from safe-haven demand driven by several factors, including the ongoing US government shutdown, uncertainty surrounding US tariffs, geopolitical risks, central bank purchases, US-China trade tensions, and President Trump’s challenges to the Federal Reserve’s independence.
📍 Furthermore, recent weaker-than-expected US economic data has strengthened the outlook for the Federal Reserve to maintain its course of interest rate cuts, which is a positive indicator for precious metals.
Precious metals are also receiving sustained support from inflows into precious metal ETFs. Holdings in gold ETFs reached a 3-year high on Tuesday, while silver holdings in ETFs similarly climbed to a 3.25-year high on the same day.
Market Outlook: Key Takeaways
Global markets are closely watching upcoming economic data, particularly the US CPI report. The confluence of rising interest rates, geopolitical tensions, and central bank policies continues to shape currency and commodity movements. Investor sentiment remains cautious, with safe-haven assets like gold and silver showing resilience amidst ongoing uncertainty.