Dollar Index Rebounds as Payroll Data Signals Economic Challenges
The dollar index (DXY00) bounced back today from a 1-1/2 week low, gaining +0.08%. Initially, the dollar fell due to a disappointing US October payroll report, hinting at possible dovish shifts in Federal Reserve policy. However, a rally in the stock market has lessened the demand for the dollar. As a result, the dollar regained its strength, with analysts noting that the downturn in the payroll report and October ISM manufacturing index can largely be attributed to two hurricanes and major labor strikes last month.
In October, nonfarm payrolls increased by only +12,000, significantly below the expected rise of +100,000, marking the smallest growth in 3-3/4 years. Additionally, September’s figures were revised down from +254,000 to +223,000. The unemployment rate in October held steady at 4.1%, consistent with forecasts.
Meanwhile, US average hourly earnings for October climbed +4.0% year-over-year, meeting expectations and representing the fastest growth in five months. On a different note, the October ISM manufacturing index unexpectedly dropped -0.7 to 46.5, falling short of the anticipated rise to 47.6, marking its lowest level in 15 months. In contrast, the ISM prices paid sub-index rose +6.5, reaching a five-month high of 54.8, surpassing the forecast of 50.0.
Construction spending in the US rose +0.1% month-over-month in September, ahead of expectations for no change. The previous month, August’s figures were adjusted upward from a reported -0.1% to +0.1% month-over-month.
Currently, markets are pricing in a 98% likelihood of a -25 basis point rate cut at the Federal Reserve’s FOMC meeting on November 6-7, while the chances of a -50 basis point cut at that meeting remain at 0%.
Across the Atlantic, the euro (EUR/USD) slipped by -0.21%. After hitting a 2-1/2 week high, the euro faced losses as the dollar’s recovery prompted liquidation of euro positions. The euro initially rose following the dollar’s temporary decline prompted by the weak payroll data.
Interest rate swaps indicate a 100% chance of a -25 basis point rate cut by the European Central Bank (ECB) for its December 12 meeting, with a 22% chance of a -50 basis point cut.
The yen (USD/JPY) appreciated by +0.51% today, despite facing downward pressure as Treasury note yields rebounded from earlier dips. Additionally, political uncertainties in Japan, particularly following the loss of a parliamentary majority by the LDP-led coalition in last weekend’s elections, have continued to affect the yen’s stability. Support, however, came from an upward revision of Japan’s October Jibun Bank manufacturing PMI, which was adjusted to 49.2 from 49.0.
In the precious metals market, December gold (GCZ24) rose by +16.90 (+0.61%), while December silver (SIZ24) increased by +0.244 (+0.74%). Overall, precious metals saw moderate gains as the dollar index reached a 1-1/2 week low, creating bullish conditions. This was further bolstered by a decline in global bond yields and expectations that the Fed might continue interest rate cuts, a typically favorable sign for precious metals.
Gold’s appeal has been enhanced by safe-haven demand amid political uncertainties in the US leading up to next Tuesday’s election, as well as similar concerns in Japan. Ongoing tensions in the Middle East have also contributed to a sustained increase in demand for safe-haven assets.
Conversely, today’s stock market upswing has dampened the demand for safe-haven precious metals. Silver’s gains are notably restrained following the unexpected fall in the October ISM manufacturing index to a 15-month low, which generally weakens demand for industrial metals.
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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.
