Dollar Gains as Economic Data Boosts Investor Sentiment
U.S. Economic Indicators Drive Dollar Strength
The dollar index (DXY00) rose by +0.19% on Friday. After facing early losses, the dollar made a rebound, showing moderate gains. Price fluctuations were influenced by rising T-note yields following strong U.S. economic reports, including capital goods new orders and the University of Michigan’s consumer sentiment index for October. Initially, the dollar slipped as increased stock strength reduced the demand for liquidity.
In September, nondefense capital goods new orders, a key indicator of capital spending, increased by +0.5% month-over-month, surpassing expectations of +0.1%.
Positive Consumer Sentiment Reports Support the Dollar
The University of Michigan’s consumer sentiment index for October was revised upward by +1.6, reaching a six-month high of 70.5, exceeding the anticipated 69.0.
Market analysis suggests a 95% probability of a -25 basis point rate cut during the Federal Open Market Committee (FOMC) meeting on November 6-7, with no expectation for a -50 basis point cut at that time.
The Euro Falls Amid Economic Pressure
In contrast, the EUR/USD (^EURUSD) declined by -0.30%. Although the euro initially strengthened due to a positive German IFO business confidence report, it ultimately fell as the dollar regained its footing. Additional pressure came from an increase in the Eurozone’s September M3 money supply, rising by the most in one year, and easing inflation expectations from the European Central Bank (ECB).
In detail, the Eurozone’s September M3 money supply rose by +3.2% year-over-year, again better than the expected +2.9%, marking the highest growth in 21 months.
The September ECB one-year inflation expectations dropped to +2.4%, the lowest in three years, down from +2.7% in August, outperforming expectations of +2.6%. Additionally, three-year inflation expectations decreased to +2.1% from +2.3% in August, also higher than the forecast of +2.2%.
German Business Confidence Strengthens Amidst ECB Rate Outlook
The German IFO business climate index increased by +1.1 to 86.5, surpassing expectations of 85.6. Comments from ECB Governing Council member Simkus, who stated, “As I read the data, I don’t see a case for a 50 basis point rate cut,” provided additional context for the euro’s movement.
Market swaps are fully pricing in a -25 basis point rate cut by the ECB at the December 12 meeting, with a 41% chance for a -50 basis point cut at the same meeting.
Yen Weakens as Interest Rate Decisions Loom
The USD/JPY (^USDJPY) rose by +0.36% on Friday. The yen faced declines following comments from Bank of Japan (BOJ) Governor Ueda, indicating no interest rate hikes would be considered during next week’s policy meeting. Political uncertainties surrounding Japan’s elections this weekend added to the downward pressure on the yen, alongside rising T-note yields.
Notably, Japan’s August leading index was revised upwards by +0.2 to 106.9. Meanwhile, the October Tokyo CPI decreased to +1.8% year-over-year, aligning with expectations.
Precious Metals See Mixed Performance Amid Market Forces
In the precious metals market, December gold (GCZ24) closed up +5.70 (+0.21%), while December silver (SIZ24) edged down -0.016 (-0.05%). Demand for precious metals remains supported by uncertainties from Middle East tensions and upcoming U.S. presidential elections. Gold, in particular, is viewed as a safe-haven asset as fears regarding the U.S. budget deficit persist.
However, gains in precious metals were tempered by a stronger dollar and rising T-note yields. Hawkish remarks from ECB member Simkus, regarding interest rates, also led to some pressure on gold 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 are 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.
