In Brief
- The U.S. Dollar Index (DXY00) saw a slight increase, hovering near a one-week high.
- Support for the dollar came from a stronger-than-expected U.S. existing home sales report for September.
- Rising T-note yields further bolstered the dollar due to favorable interest rate differentials.
- Concerns over Japan’s monetary policy contributed minor support to the dollar against the yen.
- The ongoing U.S. government shutdown is seen as a limiting factor for dollar gains.
Dollar Strength Driven by Economic Data and Yields
The U.S. Dollar Index (DXY00) experienced an upward trend today, positioning itself just below Wednesday’s one-week high. This movement was primarily underpinned by the release of the U.S. existing home sales report for September, which indicated a rise to a seven-month peak. Concurrently, higher yields on Treasury notes provided additional support, enhancing the dollar’s appeal through improved interest rate differentials.
💡 The September U.S. existing home sales report exceeded expectations, showing a 1.5% month-over-month increase to reach 4.06 million units, aligning with market forecasts.
The market is currently pricing in a high probability, 99%, of a 25 basis point rate cut by the Federal Open Market Committee (FOMC) at their upcoming meeting on October 28-29.
Euro and Yen Movements
The EUR/USD pair saw a modest gain of 0.01% today. The euro managed to recover from earlier losses, turning slightly positive following an unexpected rise in the Eurozone’s October consumer confidence indicator, which reached an eight-month high. This upward momentum for the euro is also partly attributed to the divergence in central bank policies, where the Federal Reserve is anticipated to continue its rate-cutting cycle, while the European Central Bank is nearing the end of its own easing period. However, the stronger U.S. dollar is acting as a headwind for the euro. Additionally, political instability in France, particularly the government’s challenges in passing a budget, continues to weigh on the single currency.
⚡ The Eurozone’s October consumer confidence indicator unexpectedly rose by 0.7 to -14.2, surpassing the expected decline to -15.0 and marking an eight-month high.
Market participants are observing a 1% probability of a 25 basis point rate cut by the ECB at their policy meeting scheduled for October 30.
The USD/JPY pair increased by 0.47% today. The Japanese yen weakened significantly, hitting a 1.5-week low against the dollar. This depreciation is fueled by concerns that Japan’s new Prime Minister, Takaichi, may advocate for a less hawkish monetary policy, which would be bearish for the yen. Higher Treasury note yields are also contributing to the negative sentiment surrounding the yen.
Precious Metals Rally on Inflation Hedge Demand
December COMEX gold futures surged by +89.00 (+2.19%), while December COMEX silver futures climbed by +1.114 (+2.34%). Both precious metals experienced a sharp rebound after two days of substantial losses. The recent U.S. sanctions imposed on Russia’s largest oil producers, Rosneft PJSC and Lukoil PJSC, have sent crude oil prices soaring by over 5%. This surge in oil prices is increasing inflation expectations, thereby boosting demand for gold and silver as a hedge against rising inflation.
📊 Gold and silver prices had previously reached record highs in the preceding week, extending a parabolic rally that had been ongoing for two months. These precious metals continue to benefit from safe-haven demand amid the ongoing U.S. government shutdown, uncertainties surrounding U.S. tariffs, geopolitical risks, central bank purchases, U.S.-China trade tensions, and attempts by President Trump to influence the Federal Reserve’s independence. Furthermore, recent weaker-than-expected U.S. economic data has reinforced the outlook for continued Fed interest rate cuts, a bullish factor for precious metals.
📌 Precious metals are also receiving support from robust fund buying in precious metal Exchange Traded Funds (ETFs). Gold holdings in ETFs reached a three-year high, and silver holdings in ETFs hit a 3.25-year high on the same day.
Expert Summary
The U.S. dollar saw a modest increase, boosted by positive U.S. housing data and rising Treasury yields. While the euro showed some resilience, headwinds from a strong dollar and political concerns persist. The Japanese yen weakened on policy uncertainty. Precious metals experienced a significant rally, driven by inflation hedging demand spurred by rising oil prices and ongoing geopolitical and economic uncertainties.