The dollar index (DXY00) on Thursday gave up an early advance and finished little changed, up only +0.01%. The dollar Thursday initially climbed to a 6-1/2 month high on carryover support from Wednesday when the FOMC signaled one more +25 bp rate hike this year and projected the fed funds rate next year +50 bp higher than they projected back in June. Also, Thursday’s slump in stocks boosted liquidity demand for the dollar. In addition, soaring T-note yields Thursday strengthened the dollar’s interest rate differentials. The dollar gave back most of its gains as the yen strengthened ahead of the results of Friday’s BOJ meeting.
Thursday’s U.S. economic news was mixed for the dollar. On the positive side, weekly initial unemployment claims unexpectedly fell -20,000 to a 7-1/2 month low of 201,000, showing a stronger labor market than expectations of an increase to 225,000. Also, Aug leading indicators fell -0.4% m/m, a smaller decline than expectations of -0.5% m/m.
On the negative side, the Sep Philadelphia business outlook survey fell -25.5 to -13.5, weaker than expectations of -1.0. Also, Aug existing home sales unexpectedly fell -0.7% m/m to a 7-month low of 4.04 million, weaker than expectations of a +0.7% m/m increase to 4.10 million.
EUR/USD (^EURUSD) on Thursday rose by +0.04%. The euro Thursday recovered from a 6-month low and posted modest gains. EUR/USD rose Thursday after the 10-year German bund yield climbed to a 12-year high when ECB Governing Council members Nagel and Makhlouf said the ECB may still need to raise interest rates further. Also, Thursday’s stronger-than-expected French business and manufacturing confidence indicators supported the euro.
ECB Governing Council member and Bundesbank President Nagel said it is too soon to say that interest rates have reached a plateau as the inflation rate is still “too high,” and forecasts still only show a slow decline toward the ECB’s target level of 2%.
ECB Governing Council member Makhlouf said there might still be an ECB rate hike in October, and March is too early to plan for an ECB interest rate cut.
The French Sep business confidence indicator was unchanged at 100, stronger than expectations of a decline to 98. Also, the French Sep manufacturing sentiment index unexpectedly rose +2 to 99, stronger than expectations of a decline to 95.
USD/JPY (^USDJPY) on Thursday fell by -0.56%. The yen on Thursday recovered from a 10-1/2 month low against the dollar and moved higher. A jump in Japanese government bond yields strengthened the yen’s interest rate differentials after the 10-year JGB government bond yield on Thursday rose to a 10-year high of 0.751%. Also, a slump in stocks Thursday boosted some safe-haven demand for the yen. In addition, the yen is experiencing some short covering ahead of Friday’s BOJ meeting results. Expectations are for the BOJ to maintain QE and record low interest rates.
October gold (GCV3) on Thursday closed -27.40 (-1.41%), and Dec silver (SIZ23) closed -0.149 (-0.63%). Precious metals prices Thursday posted moderate losses on carryover pressure from Wednesday when the FOMC signaled one more +25 bp rate hike this year and higher interest rates next year than the June forecasts. Also, hawkish ECB comments Thursday weighed on metals when ECB Governing Council members Nagel and Makhlouf said the ECB may still need to raise interest rates further. In addition, higher global bond yields Thursday undercut metals prices. In addition, gold was weighed down by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Wednesday. Metals prices recovered from their worst levels as a slump in stocks sparked some safe-haven demand for precious metals.
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