The dollar index (DXY00) has shown resilience today, recovering from early losses to gain +0.23%. This upward movement can be attributed to rising T-note yields, which have bolstered the dollar’s interest rate differentials and triggered short covering in the currency.
Initially, the dollar faced downward pressure as the US government shutdown entered its second day. Additionally, signs of weakness in the US labor market have fueled speculation that the Federal Reserve may cut interest rates during the upcoming FOMC meeting on October 28-29. A report from private firm Challenger, Gray & Christmas indicated that US employers have announced the highest number of job cuts this year since 2020, further undermining the dollar.
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In September, US job cuts fell by 25.8% year-over-year to 54,064. So far this year, employers have announced plans to cut 946,426 jobs, marking the highest total for this period since 2020. From January to September, US-based employers have announced plans to add nearly 205,000 jobs, the weakest year-to-date performance since 2009.
Market expectations are now pricing in a 100% likelihood of a -25 basis point rate cut at the next FOMC meeting.
Meanwhile, the EUR/USD (^EURUSD) has dipped by -0.17%. The dollar’s rebound from early losses is weighing on the euro, compounded by a report showing an unexpected rise in the Eurozone’s unemployment rate for August. This dovish indicator is bearish for the euro and suggests a more cautious ECB policy. Initially, the euro gained ground due to hawkish comments from ECB Governing Council member Kazaks, who stated that current interest rates are appropriate.
The euro’s performance is also influenced by central bank divergence, as the ECB appears to be nearing the end of its rate-cutting cycle, while the Fed is anticipated to implement two more rate cuts by year-end.
The Eurozone’s unemployment rate unexpectedly rose by +0.1% to 6.3%, indicating a weaker labor market than the anticipated steady rate of 6.2%.
Kazaks remarked, “If nothing significant happens, the ECB can keep interest rates where they are, and the 2% rate is very appropriate.”
Swaps are currently pricing in a mere 1% chance of a -25 basis point rate cut by the ECB at its October 30 policy meeting.
In the USD/JPY (^USDJPY) market, the dollar is up by +0.09%. The yen has given up overnight gains and turned slightly lower as T-note yields rise. Initially, the yen strengthened following a report that Japan’s September consumer confidence index rose to a nine-month high. Additionally, hawkish comments from BOJ Deputy Governor Uchida have pushed the Japanese 10-year bond yield to a 17-year high of 1.674%, supporting the yen.
The September consumer confidence index in Japan increased by +0.4 to a nine-month high of 35.3, surpassing expectations of 35.2.
Uchida stated, “If the outlook for economic activity and prices is realized, the BOJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation accordingly.”
In the precious metals market, December gold (GCZ25) is down -2.00 (-0.05%), while December silver (SIZ25) has decreased by -0.4396 (-0.92%). Precious metal prices have retreated from early gains as the dollar rebounds and T-note yields rise. Gold prices are further pressured by Uchida’s hawkish comments regarding potential interest rate hikes.
On Wednesday, nearest-futures gold prices reached a record high of $3,891.90 per troy ounce, while silver rallied to a 14-year high. The ongoing US government shutdown has increased safe-haven demand for precious metals. Additionally, precious metals received support from Wednesday’s ADP employment change report, which unexpectedly contracted for the second consecutive month, raising the likelihood of a Fed rate cut to 100% according to swaps markets.
Precious metals are benefiting from safe-haven support amid uncertainties related to US tariffs, geopolitical risks, and global trade tensions. President Trump’s criticisms of Fed independence, particularly his attempts to fire Fed Governor Cook, have also heightened demand for gold. Furthermore, Stephen Miran’s intention to serve as a Fed Governor while holding a White House position adds to the prevailing uncertainty.
Fund buying of precious metal ETFs continues to bolster prices, with gold holdings reaching a three-year high on Wednesday, alongside silver holdings also hitting a three-year peak.
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.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
