The dollar index (DXY00) is up by +0.55% today, just below Monday’s 1.5-year high. Higher T-note yields today have strengthened the dollar’s interest rate differentials as the 10-year T-note yield rose to a 24-year high of 5.36%. Also, higher crude oil prices today have raised inflation expectations and could prompt the Fed to tighten monetary policy, which supports the dollar.
US MBA mortgage applications fell -4.2% in the week ended October 2, with the purchase mortgage sub-index down -2.1% and the refinancing mortgage sub-index down -7.5%. The average 30-year fixed-rate mortgage rose +19 bp to a 2.75-year high of 7.49% from 7.30% the prior week.
Markets are pricing in a 22% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is down by -0.64% today and is just above Monday’s 16-month low. Dollar strength is weighing on the euro today. The euro is also under pressure amid mounting fiscal and political risks in France, which faces a deepening bond crisis as sentiment has turned negative due to missed deficit targets, policy gridlock, and presidential elections next year that could radically alter the country’s direction.
The euro found some support on today’s economic news that showed German Aug industrial production rose +2.0% m/m, stronger than expectations of +0.5% m/m and the largest increase in 17 months.
The markets are discounting a 13% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is up by +0.06% today. The yen slid to a 1.5-week low against the dollar today. Higher T-note yields are pressuring the yen after the 10-year T-note yield climbed to a 24-year high today. Also, strength in crude oil prices today is bearish for the Japanese economy and the yen, as Japan imports more than 90% of its energy. In addition, the yen has negative carryover from Tuesday, when Reuters reported that many BOJ policymakers are cautious about another interest rate hike in October and prefer to assess more data on the impact of past rate increases.
Yen losses are limited after today’s Japanese economic news showed the Aug leading index CI rose to a 12-year high, and Aug labor cash earnings rose more than expected, a hawkish factor for BOJ policy.
Markets are pricing in an 11% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is down -62.50 (-1.49%) today, and December COMEX silver (SIZ26) is down -1.704 (-2.77%).
Precious metals prices are plummeting today, with gold and silver falling to 2-month lows. Today’s stronger dollar is weighing on metals prices. Higher global bond yields today are also bearish for precious metals. In addition, higher crude oil prices today have raised inflation expectations, which could persuade global central banks to tighten their monetary policies, a bearish factor for precious metals.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4-year high today. Long holdings in silver ETFs rose to a 6.25-month high last Tuesday.
Strong central bank demand for gold is supporting gold prices, after the latest news showed 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.