The dollar index (DXY00) rallied to a 1.5-year high today and is up by +0.61%. The dollar is advancing today on the stronger-than-expected US Sep CPI report, which bolsters speculation that the Fed will keep interest rates higher for longer. The CPI report boosted the chance of a Fed rate hike at this month’s FOMC meeting to 44% from 22% before the report. Also, today’s +1% rise in WTI crude oil boosts inflation expectations and could push the Fed to keep tightening monetary policy, which supports the dollar.
Comments today from Fed Vice Chair Michelle Bowman signaled she favors keeping Fed policy steady at this month's FOMC meeting and were negative for the dollar when she said, "We have some time to wait and see how financial conditions and the economy evolve before we decide that we need to take any more action" on interest rates.
US MBA mortgage applications fell -2.7% in the week ended October 9, with the purchase mortgage sub-index down -4.0% and the refinancing mortgage sub-index down -0.4%. The average 30-year fixed-rate mortgage rose +1 bp to a 2.75-year high of 7.50% from 7.49% the prior week.
US Sep CPI rose +3.7% y/y, stronger than expectations of +3.6% y/y. Sep core CPI rose +2.6% y/y, stronger than expectations of 2.5% y/y.
Markets are pricing in a 44% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) fell to a 17-month low today and is down by -0.65%. The euro is under pressure today after the stronger-than-expected US Sep CPI report boosted the dollar. Also, Tuesday’s surge in European nat-gas prices to a 3-75-year high and today’s +1% increase in crude oil prices is negative for the Eurozone economy and the euro as Europe imports most of its energy.
The German Sep wholesale price index rose +8.7% y/y from +6.8% y/y in Aug, the strongest pace of increase in nearly 3.5 years.
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 +0.30% today. The yen tumbled to a 2.5-week low against the dollar today after the stronger-than-expected US Sep CPI report boosted the dollar. Also, today’s +1% increase in crude oil prices is bearish for Japan’s economy and the yen, as Japan imports more than 90% of its energy. In addition, today’s decline in the 10-year Japan JGB bond yield to a 3.5-week low of 2.997% weakened the yen’s interest rate differentials. Yen losses accelerated today after T-note yields rose.
The yen also has negative carryover from Tuesday on a report that said BOJ officials pushed back against an interest rate hike at this month's policy meeting, saying they see little need for consecutive rate hikes in the absence of signs that upside inflation risks will increase abruptly.
Markets are pricing in a 5% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is down -58.20 (-1.39%) today, and December COMEX silver (SIZ26) is down -3.020 (-5.07%).
Precious metals prices are plummeting today, with gold falling to a 1-week low and silver dropping to a 2.5-month low. Today’s jump in the dollar index to a 1.5-year high weighs on metals. Higher global bond yields today are also undercutting precious metals prices. In addition, today’s stronger-than-expected US Sep CPI report is hawkish for Fed policy and negative for precious metals. Finally, today’s +1% rise in crude oil prices raises inflation expectations and could persuade the world’s central banks to tighten monetary policy, 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 last Thursday. Long holdings in silver ETFs rose to a 6.5-month high on September 22.
Strong central bank demand for gold is supporting gold prices, after last Thursday’s 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.