The dollar index (DXY00) experienced a notable increase of +0.39% on Monday, reaching a one-week high. This upward movement in the dollar was primarily influenced by the resignation of French Prime Minister Lecornu, which negatively impacted the euro. Additionally, the yen faced a significant decline against the dollar following the election of Sanae Takaichi, a proponent of easy fiscal and monetary policies, as Japan’s new prime minister. The rise in T-note yields on Monday further bolstered the dollar’s appeal due to improved interest rate differentials.
However, the ongoing U.S. government shutdown, now in its second week, poses a bearish outlook for the dollar. Prolonged shutdowns could lead to economic stagnation and negatively affect GDP growth, which would further weaken the dollar’s position.
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Market participants are currently pricing in a 95% likelihood of a -25 basis point rate cut at the upcoming FOMC meeting scheduled for October 28-29.
In the forex market, EUR/USD (^EURUSD) fell by -0.26% on Monday, marking a one-week low. The political instability in France, following Prime Minister Lecornu’s resignation amid President Macron’s cabinet reshuffle, has created uncertainty for the Eurozone’s second-largest economy. Nevertheless, the euro managed to recover slightly after the Eurozone’s October Sentix investor confidence index exceeded expectations, along with optimistic comments from ECB President Lagarde regarding economic growth in 2026.
Eurozone retail sales for August rose by +0.1% month-over-month, aligning with forecasts. The October Sentix investor confidence index increased by +3.8 to -5.4, surpassing the anticipated -7.7. Lagarde emphasized that inflation in the Eurozone remains close to the 2% target and expressed expectations for economic improvement in 2026.
Swaps are currently indicating a mere 1% chance of a -25 basis point rate cut by the ECB during the policy meeting on October 30.
Meanwhile, USD/JPY (^USDJPY) surged by +1.89% on Monday. The yen fell to a two-month low against the dollar after Sanae Takaichi’s election as the leader of Japan’s ruling Liberal Democratic Party, making her the likely new Prime Minister. Takaichi’s victory has dampened expectations for an imminent interest rate hike by the Bank of Japan, raising concerns about increased debt supply due to fiscal stimulus. Additionally, rising T-note yields contributed to the yen’s decline.
In the commodities market, December gold (GCZ25) closed up +67.40 (+1.72%), while December silver (SIZ25) rose by +0.483 (+1.01%). Precious metals experienced a significant rally, with December gold reaching a new contract high and nearest-futures gold hitting an all-time high of $3,959.40 per troy ounce. December silver also achieved a contract high, with nearest-futures silver reaching a 14-year high.
The surge in precious metals can be attributed to the ongoing U.S. government shutdown, which has heightened safe-haven demand. Political turmoil in France, following Prime Minister Lecornu’s resignation, has also contributed to this demand. Furthermore, Takaichi’s election victory has led to increased concerns about fiscal stimulus and its implications for monetary policy.
Precious metals continue to attract safe-haven support amid uncertainties related to U.S. tariffs, geopolitical risks, and global trade tensions. Additionally, President Trump’s criticisms of Fed independence have fueled demand for gold, particularly in light of his attempts to influence Fed Governor Cook’s position. The potential appointment of Stephen Miran as a Fed Governor while holding a White House role adds to the prevailing uncertainty.
Recent weaker-than-expected U.S. economic data has strengthened the outlook for continued interest rate cuts by the Fed, which is a bullish factor for precious metals. The swaps market indicates a 95% probability that the Fed will lower the federal funds target range by 25 basis points at the upcoming FOMC meeting.
Support for precious metals is also coming from increased fund buying of precious metal ETFs, with gold holdings reaching a three-year high last Friday and silver holdings achieving a similar milestone last Wednesday.
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.
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