The dollar index (DXY00) tumbled to a 2.5-week low on Tuesday and finished down by -0.25%. The dollar retreated on Tuesday, pressured by a rally in the Chinese yuan to a 4-year high. Weak US housing news on Tuesday was also bearish for the dollar after US Sep housing starts unexpectedly fell to a 4-month low and Sep pending home sales fell more than expected. The dollar added to its losses on Tuesday as stocks recovered from early losses and moved higher, curbing demand for dollar liquidity.
Dollar losses were limited on Tuesday after WTI crude oil fell from a 5-month high and moved lower, which weakened inflation expectations that could persuade the Fed to loosen monetary policy, a bearish factor for the dollar.
US Sep housing starts unexpectedly fell -5.2% m/m to a 4-month low of 1.221 million, weaker than expectations of 1.305 million. Sep building permits, a proxy for future construction, fell -0.2% m/m to 1.400 million, stronger than expectations of 1.385 million.
US Sep pending home sales fell -7.3% m/m and -12.6% y/y, weaker than expectations of -0.5% m/m and -3.9% y/y.
Markets are pricing in a 17% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) rose by +0.19% on Tuesday. The euro found support Tuesday from a weaker dollar. Also, Tuesday’s stronger-than-expected German Sep PPI report is hawkish for ECB policy and supportive of the euro. In addition, easing social unrest in France boosted the euro after French authorities rolled out tougher security measures following violent protests over the weekend. Finally, weaker crude oil prices on Tuesday supported the Eurozone economy and the euro, as Europe imports most of its energy.
Euro gains were limited Tuesday after the German Oct ZEW survey showed economic growth expectations fell more than expected.
German Sep PPI rose +1.9% m/m and +6.7% y/y, stronger than expectations of +1.6% m/m and +6.3% y/y, with the +6.7% y/y gain the largest annual increase in 3.5 years.
The German Oct ZEW survey expectations of economic growth fell -6.6 to 28.1, weaker than expectations of 30.0.
The markets are discounting a 6% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) fell by -0.17% on Tuesday. Dollar weakness on Tuesday supported the yen. Also, a Reuters report on Tuesday said the BOJ will raise its inflation forecast for fiscal 2027 at its policy meeting later this month, which was hawkish for BOJ policy and pushed the yen higher. In addition, the Nikkei Stock Index fell to a 1-month low on Tuesday, boosting safe-haven demand for the yen. Finally, lower T-note yields on Tuesday were bullish for the yen.
A Reuters report on Tuesday said the BOJ will likely refrain from raising interest rates and will raise its inflation forecast for fiscal 2027 at its policy meeting later this month.
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) closed down -17.50 (-0.42%) on Tuesday, and December COMEX silver (SIZ26) closed up +0.727 (+1.27%).
Precious metals prices settled mixed on Tuesday. Dollar weakness on Tuesday supported metals prices. Lower T-note yields on Tuesday also boosted precious metals. In addition, the decline in crude oil prices on Tuesday lowered inflation expectations, which could prompt the world’s central banks to loosen monetary policy, a bullish factor for precious metals.
However, gold prices gave up their advance and turned lower Tuesday on signs of selling from Russia after Russia’s central bank reported that it reduced its gold reserves to 72.8 million ounces as of October 1, the lowest in 7 years. Russia’s central bank is the sixth largest holder of gold among the world’s central banks. Tuesday's stock rally also pressured precious metals, curbing safe-haven demand.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4-year high on Tuesday. Long holdings in silver ETFs rose to a 6.5-month high last Friday.
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.