Dollar Advances on Strong US Economic News and a Weak Euro

The dollar index (DXY00) Thursday rose by +0.22% and posted a 2-1/2 month high. Thursday’s better-than-expected US economic news on weekly jobless claims, Sep retail sales, and the Oct NAHB housing market index supported moderate gains in the dollar.  Also, weakness in the euro boosted the dollar after the ECB cut interest rates Thursday.  Strength in stocks Thursday limited liquidity demand for the dollar.

US weekly initial unemployment claims unexpectedly fell -19,000 to 241,000, showing a stronger labor market than expectations of an increase to 259,000.

US Sep retail sales rose +0.4% m/m, stronger than expectations of +0.3% m/m.  Also, Sep retail sales ex-autos rose +0.5% m/m, stronger than expectations of +0.1% m/m.

The US Oct Philadelphia Fed business outlook survey rose +8.6 to 10.3, stronger than expectations of 3.0.

US Sep manufacturing production fell -0.4% m/m, weaker than expectations of -0.1% m/m.

The US Oct NAHB housing market index rose +2 to 43.  stronger than expectations of 42.

The markets are discounting the chances at 89% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) Thursday fell by -0.32% and posted a fresh 2-1/2 month low.  Thursday’s downward revision to Eurozone Sep CPI is dovish for ECB policy and negative for the euro.  EUR/USD extended its losses Thursday after the ECB cut interest rates by -25 bp and after ECB President Lagarde said the risks to economic growth are to the downside.

Eurozone Sep CPI was unexpectedly revised lower by -0.1 to 1.7% y/y, the slowest pace of increase in more than three years and weaker than expectations of no change at +1.8% y/y.

The ECB, as expected, cut the deposit facility rate by 25 bp to 3.25% from 3.50% and said the disinflationary process is "well on track."

ECB President Lagarde said, "The risks to economic growth in the Eurozone remain tilted to the downside."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 55% chance of a 50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) Thursday rose by +0.43%.  The yen on Thursday dropped to a 2-1/2 month low against the dollar on weak Japanese economic news.  Japanese trade news for September was below expectations, and the Aug tertiary industry index posted its biggest decline in 5 months.  The yen extended its losses Thursday after stronger-than-expected US economic news pushed T-note Yields higher.

The Japan Aug tertiary industry index fell -1.1% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 5 months.

Japanese trade news was weaker than expected as Japan's Sep exports unexpectedly fell -1.7% y/y, weaker than expectations of +0.9% y/y and the largest decline in 3-1/2 years.  Sep imports rose +2.1% y/y, weaker than expectations of +2.8% y/y.

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at 27% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) Thursday closed up +16.20 (+0.60%), and December silver (SIZ24) closed down -0.200 (-0.63%).  Precious metals on Thursday settled mixed, with Dec gold posting a contract high and nearest-futures (V24) gold posting a record high of $2,691.70 an ounce.  Thursday’s action by the ECB to cut interest rates by 25 bp boosted demand for gold as a store of value.  Also, heightened tensions in the Middle East continue to boost safe-haven demand for precious metals.  In addition, fund buying of gold supported gold prices as long gold positions in ETFs rose to an 8-1/4 month high Wednesday. 

Gains in precious metals were limited Thursday after the dollar index climbed to a 2-1/2 month high. Also, stock strength Thursday curbed the safe-haven demand for precious metals.  Silver prices came under pressure Thursday after US Sep manufacturing production fell more than expected and after Japanese Sep exports unexpectedly declined, bearish factors for industrial metals demand.

More Forex News from Barchart

• S&P 500 and Dow Jones Industrials Post Record Highs on US Economic Optimism
• Dollar Moves Higher on US Economic Strength and Euro Weakness
• Stocks Rally on Solid US Economic News and Chip Stock Strength
• Dollar Rallies as the British Pound and Euro Slide

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.