Dollar Slips as Crude Oil Prices Decline
The dollar index (DXY00) is down by -0.31% today. The dollar is under pressure today from a -1% decline in WTI crude oil prices, which eases inflation expectations and is a dovish factor for Fed policy.
Losses in the dollar are limited on better-than-expected US economic news today, including Aug capital goods new orders nondefense ex-aircraft and parts and the University of Michigan US Sep consumer sentiment index. Also, hawkish comments today from New York Fed President John Williams supported the dollar when he said the Fed needs to return inflation to target.
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US Aug capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +1.6% m/m, stronger than expectations of +0.6% m/m. July was also revised upward to +0.6% m/m from the previously reported unchanged m/m.
The University of Michigan US Sep consumer sentiment index was unexpectedly revised upward by +0.3 to 48.1, stronger than expectations of a downward revision to 47.5.
New York Fed President John Williams said the Fed can't ignore supply shocks if they have a persistent effect on prices and it needs to return inflation to target.
Markets are pricing in a 66% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is up by +0.18% today. Dollar weakness today is supporting the euro. Also, today’s -1% decline in crude oil prices supports the Eurozone economy and the euro, as Europe imports most of its energy. Euro gains are limited today after the German Oct GfK consumer confidence index fell more than expected to a 5-month low.
The German Oct GfK consumer confidence index fell by -3.8 to a 5-month low of -30.6, weaker than expectations of -27.2.
The markets are discounting a 46% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is down by -0.96% today. The yen is gaining against the dollar today as short covering in the yen emerged after Japanese Prime Minister Sanae Takaichi told President Trump that the undervalued yen is problematic. The yen added to its gains after Japanese Finance Minister Satsuki Katayama said she would continue to coordinate with Treasury Secretary Bessent, signaling the US and Japan could again engage in coordinated intervention in currency markets to support the yen. In addition, today’s -1% fall in crude oil prices is supportive for the Japanese economy and the yen as Japan imports more than 90% of its energy. Finally, the yen found support today after the 10-year Japan JGB bond yield rose to a 30-year high of 3.125%, which strengthened the yen’s interest rate differentials.
The yen strengthened today after Japanese Finance Minister Satsuki Katayama said President Trump shared concerns over the weak yen and that she would continue to coordinate with Treasury Secretary Bessent, reinforcing the signal that both governments are paying attention to the yen's depreciation.
Markets are pricing in a 31% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is up +5.40 (+0.13%) today, and December COMEX silver (SIZ26) is up +0.243 (+0.38%).
Precious metals prices are climbing today amid a weaker dollar. Also, today’s -1% decline in crude oil prices eases inflation expectations and could prompt the world’s central banks to loosen their monetary policies, a bullish factor for precious metals. In addition, precious metals garnered some safe-haven demand after stocks gave up an early advance and turned lower. Limiting gains in precious metals were hawkish comments today from New York Fed President John Williams, who said the Fed needs to return inflation to target.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 6.5-month high on Thursday. Long holdings in silver ETFs rose to a 5.75-month high on Tuesday.
Strong central bank demand for gold is supporting gold prices, after news last Monday that bullion held in China's PBOC reserves rose by +650,000 ounces to 76.73 million troy ounces in August, the largest increase in three years and the twenty-second 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.
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