Dollar Weakens Ahead of Election While Precious Metals See Mixed Results
Dollar Index Declines as Trade Deficit Grows
The dollar index (DXY00) dropped by -0.43% on Tuesday, reaching its lowest level in 2-1/2 weeks. Traders initiated long liquidations due to uncertainties surrounding the close-to-call U.S. presidential election results. The widening U.S. September trade deficit also contributed to this decline, posing potential challenges for Q3 GDP. However, a surprise rise in the U.S. October ISM services index provided some support for the dollar, reaching a 2-1/4 year high.
The U.S. September trade deficit registered at -$84.4 billion, exceeding the expected -$84.0 billion, marking the largest shortfall in nearly 2-1/2 years—a negative sign for Q3 GDP.
Unexpected Rise in ISM Services Index
The ISM services index for October surged by +1.1 to 56.0, defying expectations for a drop to 53.8. This figure indicates the strongest pace of expansion seen in 2-1/4 years, bringing a glimmer of hope amid economic uncertainty.
Market predictions foresee a 99% chance of a -25 basis point rate cut during the November 6-7 FOMC meeting, with no expectations for a -50 basis point cut at that time.
Euro Gains Ground Amid Dollar Weakness
The euro (EUR/USD) increased by +0.46% on Tuesday, reaching a 3-week high partially due to the dollar’s decline. Positive economic news from the Eurozone also buoyed the currency, particularly following France’s manufacturing production data, which fell less than analysts had anticipated.
In September, French manufacturing production declined by -0.8% month-over-month, a smaller decrease than the projected -1.3%.
Market expectations show a 100% likelihood for a -25 basis point rate cut by the ECB at the December 12 meeting, alongside a 15% chance for a -50 basis point cut.
Yen Strengthens Despite Economic Policy Concerns
The USD/JPY pair fell by -0.47% on Tuesday, with the yen reaching a 1-1/2 week high against the dollar. However, this surge was dampened as the 10-year JGB bond yield dipped to a 3-1/2 week low, impacting yen interest rate differentials. Additionally, comments from Japan’s Democratic Party for the People leader, Tamaki, suggested that the BOJ should maintain its current monetary policy, which did not favor the yen’s strength. Increased Treasury note yields on Tuesday also added bearish pressure.
Tamaki stated that attempting to influence currency value with short-term monetary policy is not a wise strategy and urged the central bank to keep its policy steady for the time being.
Precious Metals Experience Mixed Price Movements
December gold (GCZ24) closed up +3.50 (+0.13%), while December silver (SIZ24) rose by +0.166 (+0.51%). Precious metals found relief from earlier losses, buoyed by the dollar’s drop to a 2-1/2 week low, which is favorable for these assets. The political uncertainty surrounding the U.S. presidential election, viewed as a close contest, has increased safe-haven demand for these metals, especially since election results might be delayed. Furthermore, expectations for the Fed to cut interest rates by -25 basis points on Thursday have heightened their appeal as a store of value. Ongoing tensions in the Middle East have only added to this demand.
Silver’s gains were also supported by a rally in copper prices, which rose to a 3-week high after positive data from the China October Caixin services PMI and the U.S. October ISM services index.
Nevertheless, precious metals face downward pressure from rising stock market strength, which has reduced safe-haven demand, coupled with higher Treasury yields that typically weigh on precious metal prices.
More Precious Metal News from Barchart
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
