The dollar index (DXY00) on Thursday fell by -0.47% and posted a 1-week low. Dovish Fed comments weighed on the dollar Thursday after Fed Governor Christopher Waller said the Fed can keep lowering interest rates to support a faltering labor market. Also, Thursday’s economic news, which showed the October Philadelphia Fed business outlook survey fell more than expected to a 6-month low, was bearish for the dollar. In addition, the strength of the euro undercut the dollar after EUR/USD rallied to a one-week high when French Prime Minister Lecornu survived two no-confidence votes.
The ongoing shutdown of the US government is bearish for the dollar. The longer the shutdown is maintained, the more likely the US economy will suffer, a negative factor for the dollar.
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The US Oct Philadelphia Fed business outlook survey fell -36.0 to a 6-month low of -12.8, weaker than expectations of 10.0.
The US Oct NAHB housing market index rose +5 to a 6-month high of 37, stronger than expectations of 33.
Fed Governor Christopher Waller said the Fed can continue to lower interest rates in quarter-point increments to support a faltering labor market.
Richmond Fed President Tom Barkin said US productivity growth appears to be improving “significantly,” potentially mitigating any inflationary impacts from trade tariffs.
The markets are pricing in a 100% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Thursday rose by +0.39% and posted a 1-week high. The euro moved higher on Thursday as political risks in France eased after French Prime Minister Lecornu survived two no-confidence votes at France’s National Assembly. Hawkish ECB comments on Thursday also supported the euro after ECB Governing Council member Wunsch said the chances of additional ECB rate cuts have been receding. In addition, Thursday’s weaker dollar was positive for the euro.
ECB Governing Council member Wunsch said, “I would say that the probability that the ECB cuts interest rates again has been receding over the last few weeks or months.”
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) on Thursday fell by -0.48%. The yen rose to a 1.5-week high against the dollar on Thursday on hawkish comments from BOJ Board member Tamura, who called for raising interest rates due to increasing inflation risks. Gains in the yen accelerated Thursday after dovish Fed comments knocked T-note yields lower. Thursday’s weaker-than-expected Japanese economic news on the Aug tertiary index and Aug core machine orders were bearish for the yen.
The yen has been under pressure over the past week, as Japan’s governing coalition collapsed following talks between LDP leader Takaichi and Komeito leader Saito, which ended without an agreement being reached. The move makes it harder for Takaichi to garner the support needed to pass budgets or any meaningful legislation and could potentially lead to another election.
The Japan Aug tertiary industry index fell -0.4% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 5 months.
Japan Aug core machine orders unexpectedly fell -0.9% m/m, weaker than expectations of +0.5% m/m.
BOJ Board member Tamura said, “I believe the BOJ is now in the phase of deciding on raising its policy interest rate” as a weak yen intensifies upside risks for inflation, and the BOJ’s policy rate is still far away from the neutral rate.
December COMEX gold (GCZ25) on Thursday closed up +103.00 (+2.45%), and December COMEX silver (SIZ25) closed up +1.918 (+4.73%). Gold and silver prices surged on Thursday, with Dec gold posting a new contract high and nearest-futures (V25) posting a new all-time high of $4,288.30 a troy ounce. Also, Dec silver posted a new contract high, and nearest-futures (V25) posted a new all-time high of $53.105 a troy ounce.
The escalation of US-China trade tensions is driving demand for safe-haven assets, including precious metals. Also, the ongoing US government shutdown has fueled demand for the metals as a safe haven. Gold prices added to their gains on Thursday after dovish comments from Fed Governor Christopher Waller knocked T-note yields lower when he said the Fed can keep lowering interest rates to support a faltering labor market. Precious metals surged to their highs on Thursday after a rout in US regional bank stocks, driven by credit concerns, fueled demand for safe-haven assets.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and political turmoil in France and Japan. Also, President Trump’s attacks on Fed independence are boosting demand for gold. In addition, recent weaker-than-expected US economic news has bolstered the outlook for the Fed to keep cutting interest rates, a bullish factor for precious metals.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Wednesday, and silver holdings in ETFs rose to a 3.25-year high on Tuesday.
On the date of publication,
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