Dollar Index Declines Amid Economic Data, Euro Strengthens
On Thursday, the dollar index (DXY00) dipped by -0.35%. A drop in T-note yields lessened the dollar’s appeal due to diminished interest rate differentials. Additionally, a rally in stocks on the same day decreased the demand for dollars. However, robust U.S. economic indicators, including weekly jobless claims and manufacturing data, helped limit the dollar’s losses, suggesting a potentially hawkish stance from the Federal Reserve.
Jobless Claims Show Unexpected Improvement
Initial jobless claims in the U.S. unexpectedly decreased by 15,000, falling to 227,000. Analysts had anticipated an increase to 242,000, indicating a stronger labor market than expected.
Mixed Signals from Economic Data
The U.S. Chicago Fed national activity index fell unexpectedly by -0.27 to a five-month low of -0.28, contrasting with forecasts of a rise to 0.50. Conversely, the S&P manufacturing PMI for October increased by +0.5, reaching 47.8—better than the anticipated 47.5. Moreover, September new home sales climbed by +4.1% month-on-month, hitting a 16-month peak of 738,000, surpassing expectations of 720,000.
Market Expectations for Fed Rate Cuts
Financial markets are pricing in a 95% likelihood of a 25 basis point rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on November 6-7, with no expectation for a 50 basis point cut.
Euro Gains Ground as Dollar Weakens
The EUR/USD (^EURUSD) pair rose by +0.37% on Thursday. The weaker dollar led to some short covering in the euro. Additionally, the Eurozone’s October S&P manufacturing PMI unexpectedly climbed to a five-month high, which supported the euro. Hawkish remarks from European Central Bank (ECB) Governing Council member and Bundesbank President Nagel, who suggested the ECB should avoid rushing into interest rate cuts, further bolstered the euro’s position.
Positive Manufacturing Data from Eurozone
In the Eurozone, the S&P manufacturing PMI for October increased by +0.9 to 45.9, exceeding forecasts of 45.1. The composite PMI also rose slightly by +0.1 to 49.7, aligning with expectations. Swaps indicate a complete certainty (100%) for a 25 basis point rate cut from the ECB at the December 12 meeting, with a 42% probability for a 50 basis point cut.
Yen Strengthens Amid Speculation
On Thursday, the USD/JPY (^USDJPY) pair decreased by -0.58%. The yen strengthened as comments from Japanese Finance Minister Kato suggested that the government may intervene in the foreign exchange market to curb rapid depreciation. The dollar’s decline in T-note yields also supported the yen; however, gains were tempered following a drop in Japan’s Jibun Bank manufacturing PMI to a seven-month low.
Warnings from Japanese Finance Minister
Finance Minister Kato expressed vigilance regarding the yen’s recent weakness, adding that authorities would monitor the forex market closely. Currently, swaps project a 3% chance of a 10 basis point rate hike from the Bank of Japan at its October 30-31 meeting, and a 29% chance at the December 18-19 meeting.
Mixed Performance in Precious Metals
In commodity markets, December gold (GCZ24) closed up +19.50 (+0.71%), while December silver (SIZ24) ended down -0.044 (-0.13%). Prices for precious metals were mixed, benefitting from a weaker dollar and lower T-note yields. However, late-session profit-taking, particularly in silver, dampened earlier gains. Concerns related to tensions in the Middle East and uncertainties surrounding the upcoming U.S. presidential election supported safe-haven demand for gold. Fund purchases of gold were also notable, with long positions in ETFs reaching an 8.75-month high as investors sought stability amid budget deficit worries.
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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 for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
