Dollar Soars Amid Economic Data and Rate Speculations
The dollar index (DXY00) climbed by +0.30% on Wednesday, reaching a 2-3/4 month high. This uptick was fueled by increasing T-note yields, which enhanced the dollar’s interest rate differentials. Additionally, a dip in stock prices created a greater demand for liquidity in the dollar. However, a concerning report revealed that September’s existing home sales in the U.S. dropped to a 14-year low, impacting the dollar’s strength.
Home Sales Decline Unexpectedly
In September, existing home sales unexpectedly decreased by -1.0% month-over-month, plunging to a low of 3.84 million. This figure fell short of expectations that predicted sales to rise to 3.88 million.
Fed Beige Book Indicates Economic Weakness
The dollar also faced pressure due to a weaker-than-expected Fed Beige Book report, which painted a less optimistic picture of the U.S. economy compared to existing data. Currently, markets are forecasting a 92% probability of a -25 bp interest rate cut during the Federal Open Market Committee (FOMC) meeting scheduled for November 6-7. There is no expectation for a larger cut of -50 bp at that time.
Eurozone Outlook Shifts
The euro fell by -0.13% against the dollar, marking a 3-1/2 month low. This decline can be traced back to a Reuters report indicating that some European Central Bank (ECB) officials are discussing the possibility of lowering interest rates below the neutral level to invigorate economic activity. Nonetheless, a boost was seen when the Eurozone October consumer confidence index reached a 2-1/2 year high.
Market Speculations on ECB Rate Cuts
Swaps trading reflects strong sentiment regarding a potential -25 bp rate cut from the ECB, with a 100% probability given for the December 12 meeting, and a 43% chance of a larger -50 bp cut at the same gathering.
Yen Faces Increased Pressure
The USD/JPY (^USDJPY) rose by +1.02%, pushing the yen to a new 2-1/2 month low. This weakness stems from recent Bank of Japan (BOJ) statements suggesting a lack of urgency to raise interest rates. Political instability, highlighted by polling indicating that Japanese Prime Minister Ishiba’s coalition may lose its majority in upcoming elections, further undermines the yen. Additionally, rising T-note yields have contributed to its decline.
Precious Metals Struggle
December gold (GCZ24) closed down -30.40 (-1.10%), while December silver (SIZ24) fell by -1.202 (-3.43%). Gold’s decline followed a fresh contract high, linked to the rise in the dollar index. Precious metal prices were also pressured by higher T-note yields. Silver suffered steeper losses after the U.S. home sales report indicated a drop to a 14-year low, negatively impacting demand for industrial metals.
Safe-Haven Demand and Future Prospects
Despite these losses, precious metals are supported by safe-haven demand stemming from tensions in the Middle East and uncertainty regarding the upcoming U.S. presidential election. Investors are seeking gold as a stable asset amid worries over the ongoing U.S. budget deficit. A dovish sentiment emerging from the ECB’s discussions about potential rate cuts also supports the outlook for precious metals.
More Precious Metal News from Barchart
On the date of publication, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more details, please refer to 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.
