Dollar Index Steady Amid Mixed Economic Signals
The dollar index (DXY00) remained mostly unchanged on Tuesday. While a positive U.S. consumer confidence report provided some support for the dollar, it was tempered by a disappointing JOLTS job openings report.
Consumer Confidence Hits Nine-Month High
Early in the session, a surge in the 10-year Treasury note yield to a new 3-3/4 month high helped lift the dollar. However, as demand for the 7-year Treasury auction increased later in the day, yields fell, putting downward pressure on the dollar.
The Conference Board reported that the October U.S. consumer confidence index surged by 9.5 points to reach a nine-month high of 108.7, significantly surpassing expectations of a minor increase to 99.5. This gain marks the largest jump in three years, signaling optimism among consumers, particularly regarding job availability.
Home Prices Show Unexpected Strength
In other economic news, U.S. home prices exceeded forecasts. The FHFA house price index increased by 0.3% month-over-month, outpacing expectations of 0.1%. The S&P CoreLogic CS 20-City U.S. home price index climbed 0.35% month-over-month and 5.20% year-over-year, also stronger than anticipated increases of 0.20% month-over-month and 5.10% year-over-year.
Trade Deficit Widens
Despite the positive consumer confidence and home price data, the dollar faced challenges. The September U.S. trade deficit rose sharply to $108.2 billion, which was higher than the expected $96 billion and wider than August’s revised figure of $94.2 billion.
Additionally, the JOLTS report indicated that job openings fell to a 3-3/4 year low of 7.443 million, well below expectations of 8.0 million and down from a revised figure of 7.861 million in August.
Rate Cut Expectations Shape Markets
Market participants are now pricing in a 96% chance of a 25 basis point rate cut at the Federal Reserve’s meeting on November 6-7, while the probability of a 50 basis point cut stands at 0%.
Euro Faces Challenges and Small Gains
The EUR/USD (^EURUSD) also closed the day relatively unchanged. While the euro was pressured by expectations that the European Central Bank (ECB) is more likely than the Federal Reserve to implement a 50 basis point rate cut, there were some positive indicators. The German GfK consumer confidence index rose to -18.3 from a revised -21.0, exceeding forecasts of -20.5.
Furthermore, ECB Vice President Luis de Guindos noted that while progress has been made in reducing inflation, substantial risks remain. His cautious stance suggests there may be no immediate urgency to cut interest rates.
Market swaps now reflect a 100% probability of a 25 basis point rate cut by the ECB at its meeting on December 12, with a 41% chance of a 50 basis point cut.
Yen Weakens Amid Political Uncertainty
The USD/JPY (^USDJPY) rose by 0.12%, as the yen continues to be affected by political uncertainty. Following the recent election, the ruling Liberal Democratic Party (LDP) lost its majority in the lower house of Parliament, diminishing chances of an interest rate hike.
Precious Metals Find Support
In the commodities market, December gold (GCZ24) increased by $25.20 (0.91%), while December silver (SIZ24) gained $0.440 (1.29%). Precious metals benefited from uncertainties surrounding U.S. politics ahead of the upcoming election and issues in Japan following the LDP’s election loss. Gold’s increase was also supported by declining Treasury note yields and the dollar index.
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 information please view the Barchart Disclosure Policy here.
The opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
