Dollar Gains on Yen Weakness and Higher T-Note Yields

The dollar index (DXY00) Friday rose by +0.11%.  The dollar on Friday posted moderate gains in weakness in the yen after the BOJ refrained from tightening monetary policy.  Also, the stock weakness on Friday boosted some liquidity demand for the dollar.  In addition, higher T-note yields Friday have strengthened the dollar’s interest rate differentials.  The dollar fell back from its best levels Friday on dovish comments from Fed Governor Waller, who said, "Inflation is running softer than I thought."

Fed Governor Waller said he supported the Fed's 50 bp rate cut this week as "inflation is running softer than I thought," and he estimates the core PCE price index, the Fed's preferred inflation gauge, is rising at an annualized pace of +1.8% over the past three months, below the Fed's 2% target.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and a 51% chance for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) Friday rose by +0.02%.  The euro on Friday recovered from early losses on stronger-than-expected reports on Eurozone Sep consumer confidence and German Aug producer prices.  The euro Friday initially moved lower on dovish comments from ECB Governing Council member Rehn who said the ECB has "a clearly easing direction for its monetary policy.” 

The Eurozone Sep consumer confidence index rose +0.5 to a 2-1/2 year high of -12.9, stronger than expectations of -13.2.

German Aug PPI rose +0.2% m/m and fell -0.8% y/y, stronger than expectations of unchanged m/m and -1.0% y/y.

ECB Governing Council member Rehn said the ECB has "a clearly easing direction for its monetary policy, with the pace and scope dependent on fresh economic data and analysis."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 26% for the October 17 meeting and 100% for that 25 bp rate cut at the December 12 meeting.

USD/JPY (^USDJPY) Friday rose by +0.83%.  The yen on Friday tumbled to a 2-week low against the dollar after the BOJ kept interest rates unchanged following Friday’s policy meeting.  Also, dovish comments from BOJ Governor Ueda weighed on the yen when he said the BOJ can take its time in raising interest rates.  Losses in the yen accelerated after T-note yields rose.  A supportive factor for the yen was Friday’s +3.0% y/y increase in Japan Aug national CPI, the most in 10 months and above the BOJ’s 2% target, a hawkish factor for BOJ policy.

Japan Aug national CPI rose +3.0% y/y, right on expectations and the biggest increase in 10 months.   Aug national CPI ex-fresh food and energy rose +2.0% y/y, right on expectations.

The Bank of Japan (BOJ) voted 9-0 to keep the overnight call rate unchanged at 0.25% and said inflation expectations "have risen moderately," with the economy likely to keep growing "at a pace above its potential rate."

BOJ Governor Ueda said there was "room" to spend more time considering the course of monetary policy, suggesting the BOJ is in no rush to raise interest rates further. 

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 5% for the October 30-31 meeting and at +41% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) Friday closed up +31.60 (+1.21%), and December silver (SIZ24) closed up +0.082 (+0.26%).  Precious metals settled higher on Friday, with Dec gold posting a contract high and nearest-futures (U24) gold posting an all-time high of $2,621.80 an ounce.  Silver prices also climbed to a 2-month high.  Precious metals have underlying support from Wednesday when the FOMC cut interest rates by -50 bp and on the outlook for additional rate cuts as the Fed projected another -50 bp worth of rate cuts by the end of this year. 

Dovish central bank comments Friday boosted demand for gold as a store of value when BOJ Governor Ueda said the BOJ can take its time in raising interest rates and ECB Governing Council member Rehn said the ECB has "a clearly easing direction for its monetary policy.”  Also, Fed Governor Waller said, "Inflation is running softer than I thought."

Precious metals prices fell back from their best levels Friday as the dollar strengthened.  Also, higher global bond yields on Friday were negative for precious metals.  Silver was also under pressure Friday after copper prices gave up an early rally to a 2-month high and turned lower, sparking long liquidation in silver. 

More Precious Metal News from Barchart

• Stocks Slip on Higher Bond Yields and Chip Stock Weakness
• Dollar Strengthens on a Weak Yen and Higher Bond Yields
• Stocks Moderately Lower Ahead of the Quarterly Triple-Witching Event
• Grab This Gold Stock While It's Cheap

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.