Dollar Rises Amid Hawkish Fed Commentary, Precious Metals Surge
Dollar Index Hits High as Treasury Yields Climb
The dollar index (DXY00) increased by +0.50% on Monday, reaching a high not seen in 2-1/2 months. Higher Treasury note yields provided support, enhancing the dollar’s interest rate differentials. The gains were further boosted by comments from Federal Reserve officials. Dallas Fed President Logan expressed her support for gradually lowering interest rates, while Minneapolis Fed President Kashkari forecasted “modest cuts over the next several quarters.”
Leading Economic Indicators Fail to Meet Expectations
In economic news, the U.S. leading economic indicators fell by -0.5% in September, trailing the expected decline of -0.3%.
Fed Signals Possible Rate Cuts
Logan stated, “If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals.” Kashkari supported last month’s 50 basis point cut but hinted at a more cautious approach moving forward.
Market expectations suggest an 89% probability for a -25 basis point cut during the November 6-7 FOMC meeting, while a cut of -50 basis points is viewed as unlikely.
Euro Struggles Against Strong Dollar
The EUR/USD pair fell by -0.49% on Monday, marking a 2-1/2 month low. A strong dollar exerted pressure on the euro, compounded by disappointing economic data from Germany. The country’s September producer prices dropped more than anticipated, signaling potential dovish moves from the European Central Bank (ECB).
German September PPI fell -0.5% month-over-month and -1.4% year-over-year, compared to expectations for -0.2% and -1.1%, respectively.
ECB Plans for Rate Cuts Amid Economic Weakness
ECB Governing Council member Simkus indicated that “it’s clear” the ECB will consider further interest rate cuts, with swaps suggesting a 100% chance of a -25 basis point cut at the December 12 meeting and a 24% chance for a -50 basis point cut.
Yen Weakens as BOJ Stays Cautious
The USD/JPY pair closed up by +0.85%, with the yen dropping to its lowest point in 2-1/2 months. Ongoing pressure on the yen followed a Bloomberg report noting that Bank of Japan officials see no urgency in raising interest rates during this month’s meeting, as Treasury yields also rose.
Swaps are pricing in a 1% chance for a +10 basis point rate hike by the Bank of Japan at the October 30-31 meeting, and a 32% chance for a hike at the December 18-19 meeting.
Precious Metals Rise Amid Global Uncertainties
In the precious metals market, December gold (GCZ24) closed up +8.90 (+0.33%) and December silver (SIZ24) rose +0.844 (+2.540%). Both metals saw rallies, with gold reaching a contract high and nearest-futures gold setting a record at $2,738.40 an ounce. Increased demand for gold was driven by safe-haven buying amid tensions in the Middle East and growing uncertainty ahead of the next U.S. presidential election.
Gold demand surged further after Chinese banks unexpectedly cut their benchmark lending rates. ECB’s Simkus’ dovish comments added fuel to the rally, indicating potential for lower interest rates. However, both gold and silver retreated slightly as the dollar index surged to a 2-1/2 month high.
More Precious Metal News from Barchart
On the date of publication, Rich Asplund did not hold any positions, directly or indirectly, in any securities mentioned in this article. All information and data presented in this article are for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
