Dollar Rebounds on Higher T-note Yields

The dollar index DXY recovered from early losses today and is up by +0.23%. The higher movement of T-note yields today strengthened the dollar's interest rate differentials and sparked short covering in the dollar. 

The dollar initially moved lower today as the US government shutdown entered its second day. Also, signs of weakness in the US labor market are bolstering the outlook for the Fed to cut interest rates at the October 28-29 FOMC meeting and are undercutting the dollar after today's report from private firm Challenger, Gray & Christmas showed US employers have cut the most jobs so far this year since 2020.

US Sep Challenger job cuts fell 25.8% y/y to 54,064. Employers have announced plans to cut 946,426 jobs so far this year, the most for the same comparable period since 2020. For January through September, US-based employers announced plans to add almost 205,000 jobs, the weakest year-to-date stretch since 2009.

The markets are pricing in a 100% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.

EUR/USD T today is up by +0.09%. The yen gave up overnight gains and turned slightly lower today as T-note yields rose. The yen initially moved higher today after the Japan Sep consumer confidence index rose more than expected to a 9-month high. Also, hawkish comments from BOJ Deputy Governor Uchida pushed the Japanese 10-year bond yield to a 17-year high of 1.674% and supported the yen when he stated that the BOJ will continue to raise interest rates if the economic outlook materializes. 

The Japan Sep consumer confidence index rose +0.4 to a 9-month high of 35.3, stronger than expectations of 35.2.

BOJ Deputy Governor Uchida said, "If the outlook for economic activity and prices is realized, the BOJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation accordingly."

December gold (GCZ25) today is down -2.00 (-0.05%), and December silver (SIZ25) is down -0.4396 (-0.92%). Precious metal prices gave up an early advance today and turned lower after the dollar rebounded from losses and moved higher. Also, higher T-note yields today are negative for precious metals. Gold prices were also pressured by hawkish comments from BOJ Deputy Governor Uchida, who stated that the BOJ will continue to raise interest rates if the economic outlook materializes. 

On Wednesday, nearest-futures (V25) gold prices rose to a record high of $3,891.90 a troy ounce, and nearest-futures (V25) silver rallied to a 14-year high. The shutdown of the US government continues for a second day today and has boosted safe-haven demand for precious metals. In addition, precious metals have carryover support from Wednesday, when the US ADP employment change unexpectedly contracted for a second consecutive month, which boosted the chances of a Fed rate cut at next month's FOMC meeting to 100%, according to swaps markets—a bullish factor for precious metals.

Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, geopolitical risks, and global trade tensions. Also, President Trump's attacks on Fed independence are boosting demand for gold, as he attempts to fire Fed Governor Cook. Additionally, Stephen Miran's intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors contributes to this uncertainty. 

Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Wednesday, and silver holdings in ETFs rose to a 3-year high on the same day.

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.