Dollar Recovers as Bond Yields and Equities Push Higher

The dollar index (DXY00) Friday recovered from a 1-1/2 week low and finished up by +0.31%.  The dollar Friday initially retreated and posted a 1-1/2 week low on the weaker-than-expected US Oct payroll report, a dovish factor for Fed policy.  Friday’s rally in stocks also reduced liquidity demand for the dollar.  However, the dollar recovered its losses and moved higher as most of the weakness in the US Oct payroll report and Oct ISM manufacturing index was attributed to two hurricanes and labor strikes last month.

US Oct nonfarm payrolls rose +12,000, weaker than expectation of +100,000 and the smallest increase in 3-3/4 years.  Also, Sep payrolls were revised lower to +223,000 from the previously reported +254,000. The Oct unemployment rate was unchanged at 4.1%, right on expectations.

US Oct average hourly earnings rose +4.0% y/y, right on expectations and the fastest pace of increase in 5 months.

The US Oct ISM manufacturing index unexpectedly fell -0.7 to 46.5, weaker than expectations of an increase to 47.6 and the steepest pace of contraction in 15 months.  The Oct ISM prices paid sub-index rose +6.5 to a 5-month high of 54.8, above expectations of 50.0. 

US Sep construction spending rose +0.1% m/m, stronger than expectations of no change.  Also, Aug was revised upward to +0.1% m/m from the previously reported -0.1% m/m.

The markets are discounting the chances at 99% 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 fell by -0.40%.  The euro on Friday fell back from a 2-1/2 week high and posted moderate losses after a recovery in the dollar sparked long liquidation in the euro. The euro initially rallied Friday after the dollar fell briefly on the weaker-than-expected US Oct payroll report. 

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB for the December 12 meeting and at 17% for a -50 bp rate cut at the same meeting.

USD/JPY (^USDJPY) Friday rose by +0.63%.  The yen was under pressure Friday after T-note yields rebounded from early losses and moved higher, a negative factor for the yen.  The yen also remains under pressure from Japanese political uncertainty after the LDP-led coalition lost its majority in the lower house of Parliament in this past weekend's election.  An upward revision Friday to the Japan Oct Jibun Bank manufacturing PMI supported the yen. 

The Japan Oct Jibun Bank manufacturing PMI was revised upward by +0.2 to 49.2 from the previously reported 49.0.

December gold (GCZ24) Friday closed down -0.10 (-0.01%), and December silver (SIZ24) closed down -0.1154 (-0.35%).  Precious metals Friday gave up an early advance and settled slightly lower.  Long liquidation emerged in precious metals Friday after the dollar index recovered from a 1-1/2 week low and moved higher.  Also, an increase in T-note yields on Friday weighed on precious metals. Also, the decline in global bond yields today is boosting precious metals.  In addition, Friday’s stock rally reduced safe-haven demand for precious metals.  Silver prices were undercut after the US Oct ISM manufacturing index unexpectedly fell to a 15-month low, a bearish factor for industrial metals demand.

Precious metals initially moved higher on Friday after the weaker-than-expected US Oct payroll report bolstered the outlook that the Fed will continue cutting interest rates, a bullish factor for precious metals.  Gold continues to benefit from safe-haven demand from US political uncertainty ahead of next Tuesday's US election.  Also, there is Japanese political uncertainty after the ruling LDP lost its majority in the lower house in this past weekend's election.  Finally, the ongoing conflict in the Middle East continues to boost safe-haven demand for precious metals. 

More Precious Metal News from Barchart

• Commodity Market Roundup: October’s Top Performers and Underperformers
• Dollar Recovers Early Losses as US Economic Reports Impacted by Storms and Strikes
• Dollar Finishes Little Changed on Euro Strength
• Dollar Recovers on Strong US Economic News

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.