Dollar Weakens Amid Mixed Economic Indicators, Precious Metals Surge
The dollar index (DXY00) decreased by -0.31% on Friday, facing pressure from lower Treasury note yields and stronger stock performance that diminished the demand for liquidity in dollars. Economic reports showed a mixed outlook for housing, with September housing starts exceeding expectations while building permits fell short.
September Housing Data: A Mixed Bag
US September housing starts declined by -0.5% month-over-month to 1.354 million, which surpassed forecasts of 1.350 million. However, building permits, a key indicator for future construction activity, fell by -2.9% month-over-month to 1.428 million, missing estimates of 1.460 million.
Federal Reserve’s Stance: A Slightly Hawkish Perspective
Comments from Atlanta Fed President Raphael Bostic brought some support to the dollar as he expressed no urgency in moving to a neutral Fed policy. He emphasized the need to bring inflation back to the 2% target, warning that premature restrictions could stall inflation recovery.
Current market expectations for the upcoming Federal Open Market Committee (FOMC) meeting on November 6-7 place a 95% chance on a -25 basis point rate cut and a 0% probability for a -50 basis point cut.
EUR/USD Movement Linked to ECB Policy Discussions
The Euro (EUR/USD) rose by +0.30% on Friday, driven by a weaker dollar and some short covering. Nevertheless, gains were limited due to reports that certain European Central Bank (ECB) policymakers wish to drop their commitment to maintaining tight monetary policy, hinting at a more dovish tone.
Specifically, sources indicated that some ECB officials believe inflation may stabilize at the target of 2% sooner than previously anticipated.
Market swaps now predict a 100% chance of a -25 basis point rate cut by the ECB at their meeting on December 12, with a 46% chance for a more aggressive -50 basis point cut at that same meeting.
Japanese Yen Gains as Inflation Persists
On Friday, the USD/JPY rate fell by -0.46%. The yen strengthened against the dollar after Japan’s September consumer prices exceeded the Bank of Japan’s (BOJ) 2% target for the 30th consecutive month, influencing expectations about future BOJ policy. Comments from Japan’s Finance Minister, Masato Kanda, suggested that officials are closely monitoring currency movements.
Japan’s national CPI eased to +2.5% year-over-year, slightly down from +3.0% in August, aligning with forecasts. Meanwhile, exclusion of fresh food and energy saw a 2.1% rise, surpassing the expected +2.0% increase.
Swaps currently indicate a 2% chance of a +10 basis point rate hike by the BOJ for the meeting on October 30-31, while the likelihood rises to 33% for the December 18-19 meeting.
Precious Metals Rally Amid Safe-Haven Demand
December gold (GCZ24) closed up +22.50 (+0.83%), marking a contract high, while December silver (SIZ24) jumped +1.460 (+4.59%) to achieve an 11-year high. Precious metals rallied as dollar weakness and lower global bond yields boosted demand. The perceived stability in the BOJ’s interest rate stance also played a role.
Additionally, ongoing tensions in the Middle East have prompted investors to seek safety in precious metals. Fund investments in gold rose to an 8.5-month high, bolstering prices, while better-than-expected Chinese economic data for the third quarter supported silver’s ascent as well.
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 herein are solely for informational purposes. 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.
