The dollar index (DXY00) is up by +0.17%, with some technical buying emerging after today’s 1-week high. The dollar is trading higher despite today’s -1.4 bp decline in the 10-year T-note yield to 4.980%.
In some supportive news for the dollar, the Sep Chicago Fed National Activity index rose to 0.07 from a revised -0.08 in August, and was stronger than expectations of a decline to -0.10. Also, the Dallas Fed’s Oct manufacturing index rose to 13.4 from 9.8, stronger than expectations for a decline to 8.8.
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The dollar is also seeing some strength against Latin American currencies as the Brazilian real plunged -10% against the dollar after President Luiz Inacio Lula da Silva surprised the markets by winning the weekend Brazilian presidential election for a fourth term.
The dollar has underlying safe-haven support from Middle East tensions as concerns continue about Houthi attacks on Saudi Arabia and speculation about whether the US and Israel will launch new military attacks on Iran and/or the Houthis after this Tuesday’s Israeli election and next Tuesday’s (Nov 3) US election.
Markets are pricing in only a 9% chance of a +25 bp Fed rate hike at this week’s FOMC meeting on Tuesday and Wednesday. However, the markets are pricing in a 90% chance of a +25 bp rate hike at the next FOMC meeting on December 8-9.
EUR/USD (^EURUSD) is down -0.10% on dollar strength. The euro has some underlying support as the situation in France improved a bit after weekend demonstrations did not involve the large-scale violence and looting seen in previous demonstrations. Moody’s also did not downgrade France’s debt rating and left France’s bond rating unchanged at Aa3 with a negative outlook. The French 10-year OAT government bond yield is down -9 bp to 4.930% today, after posting a 24-year high of 5.14% last Thursday.
Markets are pricing in a 3% chance of a +25 bp ECB rate hike at this Thursday’s ECB policy meeting.
USD/JPY (^USDJPY) is up +0.39%. The yen is weaker today on reduced repatriation demand, as US and European stock markets are trading higher after last week’s sharp drop, which provided some support for the yen last week.
The yen has underlying support on expectations that the BOJ will maintain a hawkish policy stance at its meeting this Friday, likely raising its inflation forecast for fiscal 2027. However, the odds of a BOJ rate hike at Friday’s meeting are very low at 2%, although those odds rise to 77% for a BOJ rate hike at the following meeting on December 18.
December COMEX gold (GCZ26) is up +24.6 (+0.61%), and December COMEX silver (SIZ26) is up +0.046 (+0.09%).
Gold is trading higher today after last week’s -4.1% sell-off. Last week’s gold sell-off was sparked mainly by the sharp stock market sell-off and the liquidation of precious metals positions to cover losses.
Gold is seeing support today from the -1.4 bp decline in the 10-year T-note yield, but is being undercut by the slightly higher dollar.
Gold has underlying safe-haven support from Middle East tensions, with persistent attacks by the Houthis on Saudi targets and speculation about a possible new US military attack on Iran after next Tuesday’s US election.
Gold prices were undercut last Tuesday when Russia’s central bank reported reducing its gold reserves to 72.8 million ounces as of October 1, the lowest level in 7 years. Russia’s central bank is the sixth largest holder of gold among the world’s central banks.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4.25-year high last Wednesday, although those holdings have since backed off. Long holdings in silver ETFs rose to a 7.5-month high today.
Strong central bank demand for gold is supporting gold prices, after recent news showed that bullion held in China's PBOC reserves rose by 740,000 ounces to 77.47 million troy ounces in September, the largest increase in three years and the twenty-third consecutive month the PBOC boosted its gold reserves.
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.
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