Dollar Supported by Strength in US Economic News

The dollar index (DXY00) is up by +0.19% today.  The dollar found support today on better-than-expected US economic news, including Sep JOLTS job openings and Sep factory orders.  Also, the Chinese yuan fell to a 1.5-week low against the dollar today after the PBOC raised the foreign reserve requirement ratio and asked banks to hold more foreign-currency reserves.  The dollar fell from its best level after crude oil prices dropped to a 2-week low, which weakened inflation expectations that could prompt the Fed to ease monetary policy, a negative factor for the dollar. 

US Sep JOLTS job openings rose +333,000 to a 4-month high of 7.523 million, showing a stronger labor market than expectations of 7.164 million.

US Sep factory orders rose by +1.8% m/m, stronger than expectations of +1.2% m/m and the largest increase in 5 months.

The markets are now pricing in a 79% chance of a +25 bp rate hike at the FOMC’s next meeting on December 8-9. 

EUR/USD (^EURUSD) is down by -0.09%.  The euro is moving lower today amid a stronger dollar. However, euro losses are limited by hawkish comments from ECB Governing Council member Dimitar Radev, who said the ECB may have to continue raising interest rates to contain inflation.

ECB Governing Council member Dimitar Radev said the ECB's decision last month to leave interest rates unchanged doesn't mean they won't be lifted further, and "if incoming data confirm inflationary pressures are becoming more persistent, further rate increases may be necessary."

The markets are now pricing in an 86% chance of a +25 bp rate hike at the ECB’s next policy meeting on December 17. 

USD/JPY (^USDJPY) is up by +0.33% today.  The yen slid to a 2-week low against the dollar today as a stock recovery curbed safe-haven demand for the yen.  However, yen losses are limited after crude oil prices fell to a 2-week low, which is positive for Japan’s economy, as Japan imports more than 90% of its energy.  Trading activity in the yen may be subdued as markets in Japan are closed today for the Culture Day holiday.

The market is pricing in a 76% chance of a +25 bp BOJ rate hike at its next meeting on December 18.

December COMEX gold (GCZ26) is down -24.50 (-0.62%) today, and December COMEX silver (SIZ26) is down -0.943 (-1.85%).

Precious metals prices are moving lower today, with silver sliding to a nearly 1-year low.  Today’s stronger dollar is undercutting metals prices.  Also, hopes that diplomacy could end the US-Iran conflict have reduced safe-haven demand for precious metals after the Al Araby news service reported the US approved a draft memorandum of understanding that the Qatari delegation presented to Iran.  However, today’s decline in crude oil prices to a 2-week low has eased inflation expectations and could persuade the world’s central banks to ease their monetary policies, a bullish factor for precious metals.

Gold has underlying safe-haven support from Middle East tensions, with persistent attacks by the Houthis on Saudi targets and speculation about a possible new US military attack on Iran after Tuesday’s US election.

Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4.25-year high October 21, although those holdings have since backed off.  Long holdings in silver ETFs rose to a 7.5-month high on Monday.

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.  However, Russia’s central bank, the sixth-largest central-bank gold holder, said on October 20 that it reduced its gold reserves to a 7-year low of 72.8 million ounces as of October 1.

On the date of publication, Rich Asplund did not directly have a position 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.