Dollar Pushes Higher as French Social Unrest Weighs on the Euro

The dollar index (DXY00) is up by +0.10% today.  Political risk and social unrest in France are weighing on the euro, benefiting the dollar.  However, the dollar fell from its best level after the US Oct NAHB housing market index fell more than expected to a 14-year low.   The dollar is also under pressure after the Chinese yuan rallied to a 4-year high today, undercutting the dollar.  In addition, today’s stock strength has reduced demand for dollar liquidity.

The US Oct NAHB housing market index fell -3 to a 14-year low of 29, weaker than expectations of 31.

Markets are pricing in a 17% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28. 

EUR/USD (^EURUSD)is down by -0.20% today.  Political risks and social unrest in France over the cost of living are weighing on the euro.  Also, today’s rally in European nat-gas prices to a 3.75-year high is negative for the Eurozone economy amid the euro, as Europe imports most of its energy. Losses in the euro are limited after the German Bundesbank said in a report today that "inflation risks are clearly tilted to the upside," a hawkish factor for ECB policy

The markets are discounting an 8% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.

USD/JPY (^USDJPY) is up by +0.26% today.  Dollar strength today is weighing on the yen.  Also, higher T-note yields today are bearish for the yen.  Losses in the yen are limited after today’s news showed the Japan Aug tertiary industry index fell less than expected.  Also, weakness in crude oil prices today is supportive for Japan’s economy and the yen, as Japan imports more than 90% of its energy.

The Japan Aug tertiary industry index fell -0.1% m/m, stronger than expectations of -0.4% m/m.

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 down -16.90 (-0.40%) today, and December COMEX silver (SIZ26) is down -0.035 (-0.06%).

Precious metals gave up an early advance today and moved lower as stronger stocks reduced safe-haven demand. Also, today’s Bundesbank report, which said, "inflation risks are clearly tilted to the upside," is hawkish for ECB policy and negative for precious metals. 

Precious metals initially moved higher today amid political and social unrest in France, which has boosted safe-haven demand for precious metals.  Also, weaker crude oil prices today have lowered inflation expectations, which may persuade the world’s central banks to loosen monetary policy, a bullish factor for precious metals.   Silver prices also found support from today’s stronger-than-expected Chinese economic news, which supports demand for industrial metals. 

China Q3 GDP rose +1.2% q/q and +4.5% y/y, stronger than expectations of +1.0% q/q and +4.4% y/y. Also, China’s Sep industrial production rose +5.5% y/y, right on expectations and the most in 6 months.

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.