Dollar Posts Modest Losses as T-Note Yields Fall

The dollar index (DXY00) Tuesday fell by -0.06%.  Tuesday’s decline in T-note yields undercut the dollar.  Also, Tuesday’s weaker-than-expected report on the US Oct Empire manufacturing survey general business conditions is bearish for the dollar.  The dollar was also pressured Tuesday after San Francisco Fed President Daly said the Fed will likely make one or two more 25 bp rate cuts this year.  The dollar recovered from its worst levels after Tuesday’s slide in equity markets boosted liquidity demand for the dollar. 

The US Oct Empire manufacturing survey general business conditions fell -23.6 to a 5-month low of -11.9, weaker than expectations of 3.6.

San Francisco Fed President Daly said last month's Fed rate cut was a "recalibration" of policy as inflation cools and that interest rates are still restrictive. She added that the Fed will likely make one or two more 25 bp rate cuts this year.

The markets are discounting the chances at 97% 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) Tuesday fell by -0.18% and posted a 2-1/4 month low. The euro is under pressure on expectations that the ECB will cut interest rates by 25 bp at this Thursday’s policy meeting.  The euro recovered some of its losses after Eurozone Aug industrial production posted its largest increase in 1-1/2 years, and after the German Oct ZEW survey expectations of economic growth rose more than expected.

Eurozone Aug industrial production rose +1.8% m/m, right on expectations and the largest increase in 1-1/2 years.

The German Oct ZEW survey expectations of economic growth rose +9.5 to 13.1, stronger than expectations of 10.0.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for the October 17 meeting and 100% for that -25 bp rate cut at the December 12 meeting.

USD/JPY (^USDJPY) Tuesday fell by -0.38%.  The yen moved higher Tuesday after the 10-year JGB bond yield rose to a 2-1/4 month high of 0.978%, which boosted the yen’s interest rate differentials.  The yen extended its gains Tuesday on the decline in T-note yields. 

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 25% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) Tuesday closed up +13.30 (+0.50%), and December silver (SIZ24) closed up +0.440 (+1.41%).  Precious metals on Tuesday climbed to 1-week highs and settled moderately higher.  Tuesday’s weaker dollar and slump in equity markets were supportive of metals prices. Also, Tuesday’s decline in T-note yields is a positive factor for precious metals.  In addition, heightened tensions in the Middle East continue to boost safe-haven demand for precious metals.  Finally, expectations for the ECB to cut interest rates by 25 bp on Thursday are increasing demand for gold as a store of value.  Precious metals extended their gains Tuesday when San Francisco Fed President Daly said the Fed would likely make one or two more 25 bp rate cuts this year.  Silver garnered support Tuesday after Eurozone Aug industrial production rose by the most in 1-1/2 years, a bullish factor for industrial metals.

Gains in silver were limited due to a negative carryover from Tuesday’s slide in copper prices to a 3-week low.  Also, the US Oct Empire manufacturing survey of general business conditions fell more than expected to a 5-month low, a bearish factor for industrial metals demand. 

More Forex News from Barchart

• Stock Indexes Turn Lower as Chip Makers and Energy Stocks Fall
• Dollar Under Pressure from Lower T-Note Yields
• Stocks Lower on Weakness in Energy Stocks
• Dollar Gains and Gold Slips on Hawkish Fed Comments

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.