Dollar Falls on Chinese Yuan Strength and Weak US Housing News
The dollar index (DXY00) is down by -0.31% today. The dollar is weaker today, pressured by a rally in the Chinese yuan to a 4-year high. The dollar added to its losses today after US Sep housing starts unexpectedly fell to a 4-month low and Sep pending home sales fell more than expected.
Dollar losses are limited today as stock weakness has boosted liquidity demand for the dollar. Also, today’s rally in WTI crude oil to a 5-month high has raised inflation expectations and could push the Fed to tighten monetary policy, supporting the dollar.
US Sep housing starts unexpectedly fell -5.2% m/m to a 4-month low of 1.221 million, weaker than expectations of 1.305 million. Sep building permits, a proxy for future construction, fell -0.2% m/m to 1.400 million, stronger than expectations of 1.385 million.
US Sep pending home sales fell -7.3% m/m and -12.6% y/y, weaker than expectations of -0.5% m/m and -3.9% y/y.
Markets are pricing in a 15% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.
EUR/USD (^EURUSD) is up by +0.34% today. The euro found support today from a weaker dollar. Also, today’s stronger-than-expected German Sep PPI report is hawkish for ECB policy and supportive of the euro. In addition, easing social unrest in France boosted the euro after French authorities rolled out tougher security measures following violent protests over the weekend.
Euro gains are limited after the German Oct ZEW survey showed economic growth expectations fell more than expected. Also, today’s rally in European nat-gas prices to a 3.75-year high and the rally in crude oil prices to a 5-monthhigh is bearish for the Eurozone economy and the euro, as Europe imports most of its energy.
The German Oct ZEW survey expectations of economic growth fell -6.6 to 28.1, weaker than expectations of 30.0.
German Sep PPI rose +1.9% m/m and +6.7% y/y, stronger than expectations of +1.6% m/m and +6.3% y/y, with the +6.7% y/y gain the largest annual increase in 3.5 years.
The markets are discounting a 6% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) is down by -0.35% today. Dollar weakness today is supporting gains in the yen. Also, a report from Reuters today that said the BOJ will raise its inflation forecast for fiscal 2027 at its policy meeting later this month is hawkish for BOJ policy and pushed the yen higher. In addition, today’s decline in the Nikkei Stock Index to a 1-month low increased safe-haven demand for the yen. Finally, lower T-note yields today are bullish for the yen.
A Reuters report today said the BOJ will likely refrain from raising interest rates and will raise its inflation forecast for fiscal 2027 at its policy meeting later this month.
Markets are pricing in a 5% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) is up +3.70 (+0.09%) today, and December COMEX silver (SIZ26) is up +1.072 (+1.87%).
Precious metals recovered from early losses today and moved higher. Metals have support today from a weaker dollar. Lower T-note yields today are also bullish for precious metals. In addition, stock weakness today has boosted safe-haven demand for precious metals.
On the bearish side for precious metals, WTI crude oil prices rose to a 5-month high today, raising inflation expectations and potentially prompting the world’s central banks to tighten monetary policy, a bearish factor for metals.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4-year high today. Long holdings in silver ETFs rose to a 6.5-month high last Friday.
Strong central bank demand for gold is supporting gold prices, after recent news showed that bullion held in China's PBOC reserves rose by 740,000 ounces to 77.47 million troy ounces in September, the largest increase in three years and the twenty-third consecutive month the PBOC boosted its gold reserves.
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.