The dollar index (DXY00) is currently down by -0.29%. This decline is attributed to speculation surrounding weak US labor market news released this week. Key reports, including the August JOLTS job openings, the September ADP employment change, and the September nonfarm payrolls, are raising concerns that the Federal Reserve may continue to cut interest rates. Additionally, the looming threat of a US government shutdown on Wednesday is negatively impacting market sentiment towards the dollar. However, the dollar did recover from its lowest point after August pending home sales rose more than expected, marking the largest increase in five months.
In August, pending home sales rose by +4.0% month-over-month, significantly surpassing expectations of +0.4% and representing the most substantial increase seen in five months.
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The US September Dallas Fed manufacturing activity survey unexpectedly fell by -6.9 to -8.7, which was weaker than the anticipated increase to -1.0. In contrast, comments from Cleveland Fed President Beth Hammack were hawkish and supportive of the dollar. She indicated that inflation “is not really getting back down to the Fed’s objective of 2% until the end of 2027 or early 2028” and emphasized the need to maintain a restrictive policy stance.
Currently, the markets are pricing in an 89% chance of a -25 basis point rate cut at the upcoming FOMC meeting scheduled for October 28-29.
Meanwhile, EUR/USD (^EURUSD) is up by +0.29%. The euro’s rise is primarily due to the dollar’s weakness. Today’s economic news also supported the euro, as the Eurozone’s September economic confidence index exceeded expectations. Furthermore, hawkish remarks from ECB Governing Council member Makhlouf, who stated that the ECB is “near the bottom” of its rate-cutting cycle, bolstered the euro’s position.
The euro benefits from central bank divergence, with the ECB appearing to be nearing the end of its rate-cutting cycle, while the Fed is expected to implement approximately two more rate cuts by the end of this year. The Eurozone’s September economic confidence unexpectedly rose by +0.2 to 95.5, surpassing expectations of 95.3.
Makhlouf also noted that the ECB must remain vigilant, as the full impact of US tariffs “is still to feed through” to European Union imports. Swaps are currently pricing in a 2% chance of a -25 basis point rate cut by the ECB at the October 30 policy meeting.
In the USD/JPY market (^USDJPY), the dollar is down by -0.62%. The weaker dollar is supportive of the yen, especially following an upward revision to Japan’s July leading index CI, which reached a four-month high. Additionally, hawkish comments from BOJ board member Noguchi, who highlighted the need for a BOJ interest rate hike, further strengthened the yen.
The Japan July leading index CI was revised upward to a four-month high of 106.1 from the previously reported 105.9. Noguchi stated, “Various economic indicators for Japan show steady progress in achieving the 2% price stability target. This suggests that the need to adjust the policy interest rate is increasing more than ever.”
In the precious metals market, December gold (GCZ25) is up +50.10 (+1.32%), while December silver (SIZ25) has increased by +0.329 (+0.71%). Precious metal prices are climbing today, with December gold reaching a contract high and nearest future (V25) hitting a record high of $3,825.60 per troy ounce. December silver also posted a contract high, with nearest futures (U25) achieving a 14-year high.
This rally in precious metals is driven by a weaker dollar and lower global bond yields. Safe-haven demand continues to rise amid uncertainties related to US tariffs, the potential government shutdown, and the Fed’s outlook for further interest rate cuts. President Trump’s criticisms of Fed independence, particularly his attempts to fire Fed Governor Cook, have also increased demand for gold. Furthermore, Stephen Miran’s bid for a Fed Governor position while holding his White House role adds to the prevailing uncertainty. Geopolitical risks and global trade tensions are further boosting safe-haven demand for precious metals.
Despite today’s hawkish comments from Cleveland Fed President Beth Hammack, which were bearish for precious metals, the overall market sentiment remains strong. She expressed support for a “mildly restrictive” Fed policy, citing concerns that inflation could remain above the Fed’s 2% target until 2028. Additionally, the rally in stocks has somewhat tempered safe-haven demand for precious metals.
Precious metals prices continue to receive support from fund buying of precious metal ETFs, with gold holdings in ETFs rising to a nearly three-year high last Friday, and silver holdings achieving a three-year high 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.
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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.
