Dollar Weakens as T-note Yields Fall and Stocks Rally

The dollar index (DXY00) Friday fell by -0.31%.  The dollar was under pressure Friday from lower T-note yields. Also, the strength in stocks Friday reduced liquidity demand for the dollar.  Friday’s US housing news was mixed for T-notes as Sep housing starts were stronger than expected, but Sep building permits were weaker than expected. 

US Sep housing starts fell -0.5% m/m to 1.354 million, stronger than expectations of 1.350 million. Sep building permits, a proxy for future construction, fell -2.9% m/m to 1.428 million, weaker than expectations of 1.460 million.

Comments on Friday from Atlanta Fed President Bostic were slightly hawkish and supportive for the dollar when he said he's "in no rush to get to neutral on Fed policy as we must get inflation back to our 2% target, and he doesn't want us to get to a place where inflation stalls out because we haven't been restrictive for long enough."

The markets are discounting the chances at 95% 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) Friday rose by +0.30%.  The weaker dollar Friday sparked some short covering in the euro. The upside in the euro was limited after Reuters reported that some ECB policymakers wanted to drop the pledge to keep monetary policy tight at Thursday's policy meeting, a dovish development. 

Reuters reported that some ECB policymakers wanted to drop the pledge to keep monetary policy tight at Thursday's policy meeting as they thought inflation might stabilize at the ECB's 2% target a few quarters earlier than earlier predicted.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 46% chance of a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) Friday fell by -0.46%.  The yen strengthened against the dollar Friday after Japan Sep consumer prices remained above the BOJ’s 2% target for the 30th consecutive month, a hawkish factor for BOJ policy.  Also, Friday’s comments from Japan's Ministry of Finance Minister Mimura sparked short covering in the yen and bolstered speculation Japan was close to intervening in the currency market to support the yen when he said officials are monitoring the forex market “with a sense of urgency.” Gains in the yen were limited after a Bloomberg report said that BOJ officials see little need to rush into raising interest rates at this month’s BOJ meeting.

Japan Sep national CPI eased to +2.5% y/y from +3.0% y/y in Aug, right on expectations.  Sep national CPI ex-fresh food and energy rose +2.1% y/y, stronger than expectations of +2.0% y/y.

Japan's Ministry of Finance Minister Mimura said, "At the moment, we're seeing one-sided, sudden moves in the currency market, and we'll monitor the forex market with a high sense of urgency, including any speculative moves."

A Bloomberg report said BOJ officials see little need to rush into raising interest rates this month while they remain on track to hike at a later stage with inflation staying in line with forecasts.

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 2% for the October 30-31 meeting and at 33% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) Friday closed up +22.50 (+0.83%), and December silver (SIZ24) closed up +1.460 (+4.59%).  Precious metals rallied Friday, with Dec gold posting a contract high and nearest-futures (V24) gold posting a record high of $2,713.70 an ounce. Also, Dec silver posted a contract high, and nearest-futures (V24) silver posted an 11-year high.  On Friday, dollar weakness and lower global bond yields sparked a rally in precious metals.  Demand for gold as a store of value increased Friday after a Bloomberg report said that BOJ officials see little need to rush into raising interest rates this month.  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 8-1/2 month high Thursday.  Silver garnered support from Friday’s stronger-than-expected Chinese economic news on Q3 GDP, Sep industrial production, and Sep retail sales, which are positive factors for industrial metals demand. 

More Precious Metal News from Barchart

• Stocks Mostly Higher on Positive Corporate Earnings Results
• Dollar Slips on Lower T-note Yields and Strength in Stocks
• Broader Market Mostly Higher on Positive Big Tech News
• Dollar Advances on Strong US Economic News and a Weak Euro

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.