The dollar index (DXY00) is up by +0.16% today. The dollar is moving higher today on hawkish comments from Chicago Fed President Austan Goolsbee, who said the Fed may have to hike interest rates further to restore price stability. Dollar gains are limited by the -4% plunge in WTI crude oil, which eases inflation expectations and could persuade the Fed to loosen monetary policy, a bearish factor for the dollar. Also, a stronger Chinese yuan is undercutting the dollar as it climbed to a 3.5-year high today.
Today's US economic news showed the Aug Chicago Fed national activity index fell -0.12 to -0.04, right on expectations.
Chicago Fed President Austan Goolsbee said that to restore price stability, the Fed may need to raise interest rates further and narrow the gap between supply and demand, which could lead to drops in employment, wages, and growth.
Markets are pricing in a 53% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is down by -0.13% today. Dollar strength today is weighing on the euro. Also, today’s decline in the 10-year German Bund yield to a 1-week low of 3.442% has weakened the euro’s interest rate differentials.
However, today’s -4% decline in crude oil prices is supportive of the Eurozone economy and the euro, as Europe imports most of its energy. Also, today’s monthly report from the Bundesbank was slightly hawkish and supportive of the euro as it projected stronger economic German growth in in Q4 with “persistently high” energy prices.
In its monthly report released today, the German Bundesbank said Q3 GDP will expand only "modestly" in Q3 because of short-term drivers like low water levels in the Rhine River, but the economy is expected to grow at a "stronger" pace again in Q4 and will "remain on its current path to recovery." The Bundesbank added that "persistently high prices, not only for crude oil but also for natural gas and electricity, could amplify both direct and indirect effects and delay the return of the inflation rate to 2%."
The markets are discounting a 46% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is up by +0.31% today. Dollar strength today is undercutting the yen. However, today’s -4% decline in crude oil prices is a positive factor for Japan’s economy and the yen, as Japan imports more than 90% of its energy. Also, lower T-note yields today are bullish for the yen. Moves in the yen may be exaggerated today amid below-normal trading activity, with markets in Japan closed today for the Respect-for-the-Aged Day holiday.
Markets are pricing in a 19% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is down -48.30 (-1.09%) today, and December COMEX silver (SIZ26) is down -0.549 (-0.82%).
Precious metals are under pressure today from a stronger dollar. Also, stronger stocks today have reduced safe-haven demand for precious metals. In addition, hawkish comments today from Chicago Fed President Austan Goolsbee weighed on precious metals when he said that to restore price stability, the Fed may need to raise interest rates further.
Precious metals found support today from a decline in global bond yields. Also, today’s -4% fall in crude oil prices to a 1-week low has eased inflation expectations, which could prompt the world’s central banks to ease their monetary policies, a bullish factor for precious metals.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 6.5-month high today. Long holdings in silver ETFs rose to a 5.5-month high on August 25.
Strong central bank demand for gold is supporting gold prices, after news last Monday that bullion held in China's PBOC reserves rose by +650,000 ounces to 76.73 million troy ounces in August, the largest increase in three years and the twenty-second 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.