The dollar index (DXY00) is up +0.09% and posted a new 2-week high. The dollar is seeing support from today’s +2.5 bp rise in the 10-year T-note yield, which supported the dollar’s interest rate differentials.
The dollar also has support ahead of this afternoon’s FOMC meeting results, amid expectations that Fed Chair Warsh will deliver somewhat hawkish commentary on future rate hikes to curb inflation above target. Markets are pricing in only a 9% chance of a rate hike at this week’s meeting, but a 94% chance of a hike at the FOMC’s next meeting on December 8-9.
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 will launch a new military attack on Iran after Tuesday’s (Nov 3) US election. The Wall Street Journal reported late Tuesday that the US has told several Persian Gulf countries to be prepared for a short, intense military campaign against Iran. WSJ said President Trump hasn’t yet decided to proceed with the attack but is leaning toward an attack after next Tuesday’s mid-term elections. Meanwhile, Prime Minister Netanyahu is leading in the vote count from Tuesday’s Israeli election.
In a bearish factor for the dollar, the Sep US trade deficit of -$134.9 billion was wider than market expectations of -$130.2 billion. Sep exports rose +2.4% m/m, weaker than expectations of +2.6%. Sep imports rose +2.6% m/m, stronger than market expectations of +1.3%.
EUR/USD (^EURUSD) is down -0.08% on dollar strength.
Markets are pricing in only a 2% chance of a +25 bp ECB rate hike at this Thursday’s ECB policy meeting. However, the market is pricing in a larger 82% chance of a rate hike at the ECB’s next policy meeting on December 17.
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, leaving France’s bond rating unchanged at Aa3 with a negative outlook. The French 10-year OAT government bond yield is down -3 bp to 4.89% today, well below last Thursday’s 24-year high of 5.14%.
USD/JPY (^USDJPY) is up +0.15% on dollar strength. The yen has weakened this week, after last week’s safe-haven strength during the sharp sell-off in global stock markets.
The yen has underlying support on expectations that the BOJ will maintain a hawkish policy bias at its meeting this Friday, likely raising its inflation forecast for fiscal 2027. The odds of a BOJ rate hike at Friday’s meeting are very low at 1%, although those odds rise to 84% for a BOJ rate hike at the following meeting on December 18.
December COMEX gold (GCZ26) is down -18.1 (-0.44%), and December COMEX silver (SIZ26) is down -0.708 (-1.30%).
Precious metals prices are being undercut by today’s mildly higher dollar and by today’s +2.5 bp rise in the 10-year T-note yield. Precious metals prices are also being undercut by the possibility of hawkish commentary from Fed Chair Warsh at his press conference today after the FOMC meeting.
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 on Monday.
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.