Dollar Supported by a Hawkish Fed

The dollar index (DXY00) on Friday rose by +0.19%.  The dollar Friday rallied to a new 6-1/2 month high on carryover support from Wednesday when the FOMC signaled one more +25 bp rate hike this year and projected that the fed funds rate next year would be +50 bp higher than its June forecast. 

Hawkish comments Friday from several policymakers gave the dollar a boost.  Also, Friday’s better-than-expected U.S. manufacturing PMI news was bullish for the dollar.  The dollar was undercut Friday by stock market gains, which reduced liquidity demand for the dollar. 

The U.S. Sep S&P manufacturing PMI rose +1.0 to 48.9, stronger than expectations of 48.2.

San Francisco Fed President Daly said she is not ready to declare victory in the fight against inflation and said it is unlikely that inflation will reach the Fed's 2% goal in 2024.

Fed Governor Bowman said, "I continue to expect that further rate hikes will likely be needed to return inflation to 2% in a timely way."

Boston Fed President Collins said, "I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table."

EUR/USD (^EURUSD) on Friday fell by -0.10% and posted a 6-month low. The euro moved lower Friday after the Eurozone Sep S&P manufacturing PMI unexpectedly declined and after ECB Chief Economist Lane said the Eurozone economy this year will be "fairly muted."  The euro recovered from its worst levels on hawkish comments from ECB Governing Council member De Cos, who said, "It is certainly too early to talk about rate cuts at the moment." 

The Eurozone Sep S&P manufacturing PMI unexpectedly fell -0.1 to 43.4, weaker than expectations of an increase to 44.0.  However, the Sep S&P composite PMI rose +0.4 to 47.1, stronger than expectations of a decline to 46.5.

ECB Governing Council member De Cos said, "The growth outlook for the Eurozone has been revised downwards, and the risks are on the downside."  However, "it is certainly too early to talk about rate cuts at the moment."

USD/JPY (^USDJPY) on Friday rose by +0.54%.  The yen retreated Friday and held just above Thursday’s 10-1/2 month low against the dollar.  The yen weakened after the BOJ maintained record-low interest rates after Friday’s policy meeting, and BOJ Governor Ueda said the distance from being able to adjust the negative rate hasn't changed much.  Another bearish factor for the yen was Friday’s news that the Japan Sep Jibun Bank manufacturing PMI contracted at the steepest pace in 7 months.  Losses in the yen were contained after the 10-year JGB bond yield rose to a 10-year high of 0.756% and as T-note yields declined.

The BOJ, as expected, voted 9-0 to keep the policy balance rate unchanged at -0.1% and to maintain the 10-year JGB yield target at about 0%.

BOJ Governor Ueda said the distance from being able to adjust the negative rate hasn't changed much, and if the BOJ's inflation goal is in sight, we will mull ending yield curve control and an interest rate shift.

Japan Aug national CPI eased to +3.2% y/y from +3.3% y/y in July, stronger than expectations of +3.0% y/y. Aug national CPI ex-fresh food and energy was unchanged from July at +4.3% y/y, right on expectations.

The Japan Sep Jibun Bank manufacturing PMI fell -1.0 to 48.6, the steepest pace of contraction in 7 months.

October gold (GCV3) on Friday closed +6.00 (+0.31%), and Dec silver (SIZ23) closed +0.157 (+0.66%). Precious metals prices Friday closed moderately higher, with silver posting a 2-week high.  Lower T-note yields Friday were supportive for precious metals.  Silver also garnered support from Friday’s stronger-than-expected U.S. S&P manufacturing PMI report, which was a positive factor for industrial metals demand. 

Gains in metals were limited with Friday’s rally in the dollar index to a 6-1/2 month high.  Also, hawkish central bank comments are bearish for precious metals after Boston Fed President Collins said, "I expect rates may have to stay higher, and for longer, than previous projections had suggested,” and after ECB Governing Council member De Cos said, "it is certainly too early to talk about rate cuts at the moment."  Finally, gold is being weighed down by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Thursday.

More Precious Metal News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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