Dollar Falls on Lower Bond Yields and Yen Strength

The dollar index (DXY00) today fell to a 1-week low and is down by -0.43%.  Dovish comments today from former New York Fed President Dudley knocked bond yields lower and weighed on the dollar when he said he sees “a strong case for a 50 bp cut” in interest rates at next week’s FOMC meeting.  Strength in the yen also undercuts the dollar as the yen jumped to an 8-1/2 month high against the dollar today.  Today’s economic news was mixed for the dollar after the US Aug import price index ex-petroleum unexpectedly fell, and the University of Michigan Sep consumer sentiment index rose to a 4-month high.

The US Aug import price index ex-petroleum unexpectedly fell -0.1% m/m, weaker than expectations of a +0.2% m/m increase.

The University of Michigan US Sep consumer sentiment index rose +1.1 to a 4-month high of 69.0, stronger than expectations of 68.5.

The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 48% for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) today is up by +0.14% at a 1-week high.  The euro is moderately higher today due to a weaker dollar.  The euro also found support today on comments from several ECB members who said they did not favor cutting interest rates at the October ECB meeting.

Eurozone Jul industrial production fell -0.3% m/m, right on expectations.

ECB President Lagarde said she is open to considering an interest rate cut in October if the Eurozone economy suffers a major setback, but a cut at the December ECB meeting is more likely as we will have more comprehensive information available on the economy by then. 

ECB Governing Council member Holzmann said the October ECB meeting might not be the time for another rate cut, but there could be room for another rate cut at the December meeting.

ECB Governing Council member Kazaks said a slump in the Eurozone economy would be required for the ECB to cut interest rates at its next meeting in October.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 44% for the October 17 meeting and at 100% for that 25 bp rate cut at the December 12 meeting.

USD/JPY (^USDJPY) is down by -0.88%.  The yen today rallied to an 8-1/2 month high against the dollar.   The yen garnered support today after Japan's Jul industrial production was revised upward.  Also, central bank divergence supports the yen as the Fed is expected to begin cutting interest rates next week while the BOJ is expected to keep raising rates. Lower T-note yields today are bullish for the yen.

Japan Jul industrial production was revised upward by +0.3 to 3.1% m/m from the previously reported +2.8% m/m.

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +11% for the October 30-31 meeting.

December gold (GCZ24) today is up +21.80 (+0.84%), and December silver (SIZ24) is up +0.808 (+2.68%).  Precious metals today are moderately higher, with Dec gold posting a contract high and nearest futures (U24) posting a record high of $2,581.80 an ounce.  Also, silver posted an 8-week high.  Today’s fall in the dollar index to a 1-week low is bullish for metals.  Also, lower global bond yields are bullish for precious metals.  In addition, today’s comments from former New York Fed President Dudley sparked demand for gold as a store of value when he said he sees “a strong case for the Fed to cut interest rates by 50 bp” at next week’s FOMC meeting.  Finally, fund buying of gold supported gold prices as long gold positions in ETFs rose to a 7-month high Thursday. 

More Precious Metal News from Barchart

• Stocks Climb on Chip Stock Strength and Lower Bond Yields
• Dollar Edges Lower as the Euro Climbs on Hawkish ECB Rate Cut
• Dollar Slips and Gold Climbs to a Record High as ECB Cuts Interest Rates
• Dollar Sees Support From Reduced Chance of 50 bp Fed Rate Cut Next Week

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.