Dollar Pressured by Lower Crude Prices
The dollar index (DXY00) is down by -0.30%, falling back from Monday’s 1.5-year high. The dollar is under pressure today after WTI crude oil fell nearly -1%, lowering inflation expectations that could prompt the Fed to loosen monetary policy and undercut the dollar. The dollar added to its losses today on comments from Fed Governor Christopher Waller, who said the recent surge in long-term bond yields is doing some of the Fed's work to tighten monetary policy, suggesting he favors holding policy steady at the FOMC meeting later this month.
The dollar recovered from its worst level on hawkish comments from Chicago Fed President Austan Goolsbee, who said inflation tied to the AI boom is "jumping out of its lane" and starting to push up prices in unrelated corners of the economy. Also, the unexpected increase in Sep existing home sales is supportive for the dollar.
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US Sep existing home sales unexpectedly rose +1.5% m/m to 3.99 million, stronger than expectations of a decline to 3.95 million.
The International Monetary Fund (IMF) raised its 2026 global GDP forecast to 3.1% from 3.0% in July, and kept its 2026 global consumer price forecast unchanged from July at 4.7%.
Markets are pricing in a 24% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is up by +0.32% today, rebounding from Monday’s 17-month low. Dollar weakness today has spurred some short covering in the euro. Also, today’s decline in crude oil prices is supportive for the Eurozone economy and the euro, as Europe imports most of its energy.
The markets are discounting an 11% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is down by -0.15% today. The yen is moving higher today amid a weaker dollar. Also, today’s decline in crude oil prices supports the Japanese economy and the yen, as Japan imports more than 90% of its energy. In addition, lower T-note yields today are bullish for the yen.
Gains in the yen are limited today after Japan’s Sep producer prices rose less than expected, a dovish factor for BOJ policy. Also, Japan’s 10-year JGB yield fell to a 3-week low of 3.002% today, narrowing the yen’s interest rate differentials.
Japan Sep PPI rose +0.3% m/m and +6.8% y/y, weaker than expectations of +0.5% m/m and +7.6% y/y.
According to people familiar with the matter, BOJ officials pushed back against an interest rate hike at this month's policy meeting, saying they see little need for consecutive rate hikes in the absence of signs that upside inflation risks will increase abruptly.
Markets are pricing in a 7% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is up +3.40 (+0.08%) today, and December COMEX silver (SIZ26) is down -0.573 (-0.95%).
Precious metals prices are mixed today. Precious metals have support today from a weaker dollar and lower global bond yields. Also, today’s decline in crude oil prices eases inflation expectations that could prompt the world’s central banks to loosen monetary policy, a bullish factor for precious metals. In addition, dovish comments today from Fed Governor Christopher Waller were supportive of precious metals when he said the recent surge in long-term bond yields is doing some of the Fed's work to tighten monetary policy, suggesting he favors holding policy steady at the FOMC meeting later this month. Precious metals are seeing limited gains amid hawkish comments from Chicago Fed President Austan Goolsbee, who said the AI boom is starting to push up consumer prices.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4-year high last Thursday. Long holdings in silver ETFs rose to a 6.5-month high on September 22.
Strong central bank demand for gold is supporting gold prices, after last Thursday’s 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.
