The dollar index (DXY00) tumbled to a 1-month low on Monday and finished down by -0.13%. The dollar fell as Monday’s -7% plunge in crude oil prices eased inflation expectations, which could persuade the Fed to ease monetary policy, a bearish factor for the dollar. The dollar was also weighed down by a -3.7 bp decline in the 10-year T-note yield, which undercuts the dollar’s interest rate differentials. The dollar recovered from its worst level after the Oct ISM manufacturing index unexpectedly increased.
The US Oct ISM manufacturing index unexpectedly rose by +1.0 to 55.5, stronger than expectations of no change at 54.5. The Oct ISM prices paid sub-index fell -2.7 to 75.2, weaker than expectations of 77.2.
US Sep construction spending unexpectedly fell -1.9% m/m, weaker than expectations of a +0.3% m/m increase and the biggest decline in nearly 6.5 years.
The markets are now pricing in a 74% chance of a +25 bp rate hike at the FOMC’s next meeting on December 8-9.
EUR/USD (^EURUSD) climbed to a 1-week high on Monday and finished up by +0.32%. Dollar weakness on Monday supported euro gains. Also, the upward revision to the Eurozone Oct S&P manufacturing PMI was positive for the euro. In addition, hawkish comments on Monday from ECB Governing Council member Peter Kazimir boosted the euro when he said investors may not be pricing in enough ECB tightening to contain inflation.
The Eurozone Oct S&P manufacturing PMI was revised upward by +0.3 to 52.7 from the previously reported 52.4.
German Sep retail sales unexpectedly fell -2.0% m/m versus expectations of a +0.4% m/m increase.
ECB Governing Council member Peter Kazimir said, "Markets may still underestimate what is required" and may not be pricing in enough ECB tightening, with the energy shock showing no sign of fading and inflation picking up again.
The markets are now pricing in an 83% chance of a +25 bp rate hike at the ECB’s next policy meeting on December 17.
USD/JPY (^USDJPY) rose by +0.21% on Monday. The yen was under pressure Monday on reduced safe-haven demand after Iran signaled willingness to pursue peace talks with the US. Yen losses were limited after Japanese Finance Minister Satsuki Katayama fueled speculation that Japanese authorities could intervene in the forex market to support the yen, saying they are prepared to respond if currency market movements become disorderly. Also, Monday’s -7% plunge in crude oil prices to a 2-week low is positive for Japan’s economy, as Japan imports more than 90% of its energy.
The market is pricing in a 79% chance of a +25 bp BOJ rate hike at its next meeting on December 18.
December COMEX gold (GCZ26) closed up +70.70 (+1.81%) on Monday, and December COMEX silver (SIZ26) closed up +1.612 (+3.27%).
Precious metals prices settled sharply higher on Monday, recovering some of last Friday’s rout, after the dollar index tumbled to a 1-month low. Also, Monday’s -7% plunge in crude oil prices lowered inflation expectations and could persuade the world’s central banks to ease their monetary policies, a bullish factor for precious metals.
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 Tuesday’s US election.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4.25-year high October 21, although those holdings have since backed off. Long holdings in silver ETFs rose to a 7.5-month high last Thursday.
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. However, Russia’s central bank, the sixth-largest central-bank gold holder, said on October 20 that it reduced its gold reserves to a 7-year low of 72.8 million ounces as of October 1.
On the date of publication, Rich Asplund did not directly have a position 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.