The dollar index (DXY00) recovered from early losses on Thursday and finished up by +0.11%. Hawkish Fed comments on Thursday sparked short covering in the dollar after Dallas Fed President Lorie Logan and Chicago Fed President Austan Goolsbee said the Fed should be wary about additional interest rate cuts.
The dollar initially moved lower on Thursday as the US government shutdown entered its second day. Also, signs of weakness in the US labor market are bolstering the outlook for the Fed to cut interest rates at the October 28-29 FOMC meeting and are undercutting the dollar after Thursday’s report from private firm Challenger, Gray & Christmas showed US employers have cut the most jobs so far this year since 2020.
US Sep Challenger job cuts fell 25.8% y/y to 54,064. Employers have announced plans to cut 946,426 jobs so far this year, the most for the same comparable period since 2020. For January through September, US-based employers announced plans to add almost 205,000 jobs, the weakest year-to-date stretch since 2009.
Dallas Fed President Lorie Logan signaled that she may not support a Fed rate cut at this month’s FOMC meeting, saying, “I see inflation running above our 2% target.” As a result, “my forecast has a little bit slower of a normalization of the policy path in order to make sure we get all the way to 2%. So, it will take some time.”
Chicago Fed President Austan Goolsbee said the US economy is still growing “pretty solidly” and we want to “be careful” about overly frontloading rate cuts.
The markets are pricing in a 98% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Thursday fell by -0.06%. Thursday’s rebound in the dollar from early losses to higher on the day weighed on the euro. Also, Thursday’s economic news that showed the Eurozone’s August unemployment rate unexpectedly increased was a dovish factor for ECB policy and bearish for the euro. The euro initially moved higher on Thursday on hawkish comments from ECB Governing Council member Kazaks, who said current ECB interest rates are appropriate.
The euro also has support from central bank divergence, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly two more times by the end of this year.
The Eurozone Aug unemployment rate unexpectedly rose by +0.1 to 6.3%, showing a weaker labor market than expectations of no change at 6.2%.
ECB Governing Council member Kazaks said, “If nothing significant happens, the ECB can keep interest rates where they are and the 2% rate is very appropriate.”
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) on Thursday rose by +0.06%. The yen gave up its overnight gains and turned slightly lower on Thursday as the dollar rebounded following hawkish comments from the Fed. The yen initially moved higher on Thursday after the Japan Sep consumer confidence index rose more than expected to a 9-month high. Also, hawkish comments from BOJ Deputy Governor Uchida pushed the Japanese 10-year bond yield to a 17-year high of 1.674% and supported the yen when he stated that the BOJ will continue to raise interest rates if the economic outlook materializes.
The Japan Sep consumer confidence index rose +0.4 to a 9-month high of 35.3, stronger than expectations of 35.2.
BOJ Deputy Governor Uchida said, “If the outlook for economic activity and prices is realized, the BOJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation accordingly.”
December gold (GCZ25) on Thursday closed down -29.40 (-0.75%), and December silver (SIZ25) closed down -1.310 (-2.75%). Precious metal prices gave up an early advance Thursday and retreated after the dollar rebounded from losses and moved higher. Gold prices were also pressured by hawkish comments from central banks. BOJ Deputy Governor Uchida said that the BOJ will continue to raise interest rates if the economic outlook materializes. Also, Dallas Fed President Lorie Logan and Chicago Fed President Austan Goolsbee said the Fed should be careful about additional interest rate cuts.
On Wednesday, nearest-futures (V25) gold prices rose to a record high of $3,891.90 a troy ounce, and nearest-futures (V25) silver rallied to a 14-year high. The shutdown of the US government continued for a second day on Thursday, boosting safe-haven demand for precious metals. In addition, precious metals have carryover support from Wednesday, when the US ADP employment change unexpectedly contracted for a second consecutive month, which boosted the chances of a Fed rate cut at next month’s FOMC meeting to 100%, according to swaps markets—a bullish factor for precious metals.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and global trade tensions. Also, President Trump’s attacks on Fed independence are boosting demand for gold, as he attempts to fire Fed Governor Cook. Additionally, Stephen Miran’s intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors contributes to this uncertainty.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Wednesday, and silver holdings in ETFs rose to a 3-year high on the same day.
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. This article was originally published on Barchart.com
