Dollar Index Climbs as Euro Falls on Dovish ECB Comments

Today, the dollar index (DXY00) increased slightly by +0.05%, reaching a new 2-1/2 month high. A drop in stock prices pushed investors to seek liquidity in the dollar. Additionally, the latest data from the Richmond Fed highlighted a rise in manufacturing, which added to the dollar’s strength. Comments from ECB President Lagarde further contributed to the euro’s decline, pushing it to a 2-1/2 month low.

The US October Richmond Fed manufacturing survey improved by +7 points, achieving a 4-month high of -14, surpassing forecasts of -17.

Market expectations now reflect a 92% chance of a -25 basis point rate cut during the FOMC meeting on November 6-7, while the likelihood of a more significant -50 basis point cut remains at 0%.

Eurozone Struggles as Car Sales Decline

The EUR/USD (^EURUSD) pair fell by -0.10%, marking its own 2-1/2 month low. Economic data from the Eurozone weighed heavily on the euro, especially after September new car registrations dropped for the second consecutive month, falling -6.1% year-over-year to 809,000 units. Lagarde’s dovish remarks about the Eurozone’s interest rate outlook added to the euro’s losses, although comments from ECB Governing Council member Escriva, which suggested rates might remain above pre-pandemic levels, provided some support.

BOJ Remains Cautious Amid Yen Weakness

The USD/JPY (^USDJPY) pair rose by +0.07%, as the yen continued to struggle, hitting a new 2-1/2 month low against the dollar. The Bank of Japan (BOJ) has indicated that there’s no urgent need to increase interest rates, contributing to the yen’s weakness. Rising Treasury note yields have also contributed to the currency’s decline. Swaps currently place a 2% chance on a +10 basis point rate hike at the BOJ’s upcoming meeting on October 30-31, with a 31% probability for a hike at the December 18-19 meeting.

Precious Metals See Uptick Amid Geopolitical Uncertainty

In the commodities market, December gold (GCZ24) is up by +13.10 (+0.48%), while December silver (SIZ24) increased by +0.552 (+1.62%). The rise in precious metals is attributed to heightened safe-haven demand stemming from tensions in the Middle East and uncertainty surrounding the upcoming US presidential election. Gold is seen as a reliable store of value, particularly with expectations of rising fiscal spending post-elections, which could affect the budget deficit. Furthermore, strong fund buying in gold ETFs raised long positions to an 8-1/2 month high.

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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.