Dollar Strengthens on a Weak Yen and Higher Bond Yields

The dollar index (DXY00) today is up by +0.27%.  The dollar today is moderately higher on weakness in the yen after the BOJ refrained from tightening monetary policy.  Also, the weakness in stocks today has boosted some liquidity demand for the dollar.  In addition, higher T-note yields today have strengthened the dollar’s interest rate differentials. 

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and a 38% chance for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) today is down by -0.20%.  The euro today is under pressure from a stronger dollar.  Also, dovish comments today from ECB Governing Council member Rehn undercut the euro when he said the ECB has "a clearly easing direction for its monetary policy.” The euro garnered some support from today’s stronger-than-expected reports on Eurozone Sep consumer confidence and German Aug producer prices. 

The Eurozone Sep consumer confidence index rose +0.5 to a 2-1/2 year high of -12.9, stronger than expectations of -13.2.

German Aug PPI rose +0.2% m/m and fell -0.8% y/y, stronger than expectations of unchanged m/m and -1.0% y/y.

ECB Governing Council member Rehn said the ECB has "a clearly easing direction for its monetary policy, with the pace and scope dependent on fresh economic data and analysis."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 24% for the October 17 meeting and 100% for that 25 bp rate cut at the December 12 meeting.

USD/JPY (^USDJPY) today is up by +1.14%.  The yen today tumbled to a 2-week low against the dollar after the BOJ kept interest rates unchanged following today’s policy meeting.  Also, dovish comments from BOJ Governor Ueda weighed on the yen when he said the BOJ can take its time in raising interest rates.  Losses in the yen accelerated after T-note yields rose.  A supportive factor for the yen was today’s +3.0% y/y increase in Japan Aug national CPI, the most in 10 months and above the BOJ’s 2% target, a hawkish factor for BOJ policy.

Japan Aug national CPI rose +3.0% y/y, right on expectations and the biggest increase in 10 months.   Aug national CPI ex-fresh food and energy rose +2.0% y/y, right on expectations.

The Bank of Japan (BOJ) voted 9-0 to keep the overnight call rate unchanged at 0.25% and said inflation expectations "have risen moderately," with the economy likely to keep growing "at a pace above its potential rate."

BOJ Governor Ueda said there was "room" to spend more time considering the course of monetary policy, suggesting the BOJ is in no rush to raise interest rates further. 

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at +47% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) today is up +18.90 (+0.72%), and December silver (SIZ24) is down -0.098 (-0.31%).  Precious metals today are mixed, with Dec gold posting a contract high and nearest-futures (U24) gold posting an all-time high of $2,591.60 an ounce. Precious metals have underlying support from Wednesday when the FOMC cut interest rates by -50 bp and projected another -50 bp worth of rate cuts by the end of this year.  Also, dovish central bank comments today boosted demand for gold as a store of value when BOJ Governor Ueda said the BOJ can take its time in raising interest rates and ECB Governing Council member Rehn said the ECB has "a clearly easing direction for its monetary policy.” 

Precious metals prices fell back from their best levels today as the dollar strengthened.  Also, higher global bond yields today were negative for precious metals.  Silver fell back from a 2-month high today and moved slightly lower after copper prices gave up an early rally to a 2-month high and turned lower, sparking long liquidation in silver. 

More Forex News from Barchart

• Stocks Moderately Lower Ahead of the Quarterly Triple-Witching Event
• Dollar Slightly Higher as British Pound Surges to a 2-1/2 Year High
• Dollar Pushes Higher on Hawkish US Jobless Claims Report
• Dollar Pressured After FOMC Cuts Interest Rates by 50 bp

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.