Dollar Weakens on Euro Strength and Lower T-Note Yields

The dollar index (DXY00) today is down -0.27%.  Strength in the euro is weighing on the dollar on today’s news that Eurozone Q3 GDP grew more than expected.  The dollar added to its losses after T-note yields fell when US Q3 GDP grew less than expected.  Losses in the dollar are limited after the US Oct ADP employment report posted its largest increase in 15 months, a hawkish factor for Fed policy.  Also, Sep pending home sales posted their largest increase in 4-1/4 years.

The US Oct ADP employment change rose +233,000, showing a stronger labor market than expectations of +111,000 and the biggest increase in 15 months.

US Q3 GDP grew by +2.8% (q/q annualized), slightly weaker than expectations of +2.9%.  Q3 personal consumption rose +3.7%, stronger than expectations of +3.3%, and the Q3 core PCE price index eased to +2.2% from 2.8% in Q2.

US Sep pending home sales rose +7.4% m/m, stronger than expectations of +1.9% m/m and the largest increase in 4-1/4 years.

The markets are discounting the chances at 96% 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) today climbed to a 1-week high and is up +0.28%. Signs of strength in the Eurozone economy are bullish for the euro after Eurozone Q3 GDP grew more than expected. Also, signs of sticky price pressures are hawkish for ECB policy and supportive for the euro after German Oct CPI rose more than expected.  Gains in the euro are limited after the Eurozone Oct economic confidence index unexpectedly fell to a 6-month low.

Eurozone Q3 GDP grew +0.4% q/q and +0.9% y/y, stronger than expectations of +0.2% q/q and +0.8% y/y.

Eurozone Oct economic confidence unexpectedly fell -0.7 to a 6-month low +0.4% q/q and +0.9% y/y, stronger than expectations of +0.2% q/q and +0.8% y/y. 

German Oct CPI (EU harmonized) rose +0.4% m/m and +2.4% y/y, stronger than expectations of +0.2% m/m and +2.1% y/y.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 26% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) is down by -0.07%.  The yen today is slightly stronger as T-note yields fall. Also, position squaring ahead of Thursday’s BOJ meeting supported the yen, although the BOJ is expected to keep interest rates unchanged.  Strength in the yen is limited after the Japan Oct consumer confidence index fell more than expected to a 5-month low.  The yen continues to see weakness from Japanese political uncertainty after the LDP-led coalition lost its majority in the lower house of Parliament in this past weekend's election.  

December gold (GCZ24) is up +8.50 (+0.31%), and December silver (SIZ24) is down -0.501 (-1.45%).  Precious metals today are mixed, with Dec gold posting a new contract high and nearest-futures (X24) gold posting a record high of $2,787.50 per ounce.   A weaker dollar and lower global bond yields today are supportive for precious metals. Gold is also climbing on safe-haven demand from US political uncertainty ahead of next Tuesday's US election.  In addition, there is also Japanese political uncertainty after the ruling LDP lost its majority in the lower house in this past weekend's election. 

Signs of strong global demand for gold are supporting gold prices after the World Gold Council reported today that Q3 global gold demand rose +5% y/y to a record and that global gold consumption rose above $100 billion for the first time.  Silver prices were undercut after US Q3 GDP grew less than expected, which was a negative factor for industrial metals demand. 

More Precious Metal News from Barchart

• Dollar Little Changed After Mixed US Economic Reports
• Dollar See Support from Higher T-note Yields
• Dollar Little Changed on Cross Currents
• Dollar Sees Pressure from Reduced Middle East Risks

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.