The dollar index (DXY00) fell from a new 1.5-month high today and is down by -0.20%. The dollar is under pressure today after WTI crude oil prices fell more than -2%, easing inflation expectations and a dovish factor for Fed policy. Lower T-note yields today are also weighing on the dollar. In addition, today’s sharp rally in stocks has curbed demand for dollar liquidity.

Dollar losses are limited after US weekly jobless claims unexpectedly fell to an 8-week low today, signaling a strong labor market. The dollar also has carryover support from Wednesday when the FOMC raised interest rates by 25 bp and signaled another rate hike by the end of the year.

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US weekly initial unemployment claims unexpectedly fell -10,000 to an 8-week low of 196,000, showing a stronger labor market than expectations of an increase to 207,000.

US Aug housing starts unexpectedly fell -2.6% m/m to 1.275 million, weaker than expectations of an increase to 1.320 million. Aug building permits, a proxy for future construction, fell -2.7% m/m to 1.394 million, weaker than expectations of 1.408 million.

The US Sep Philadelphia Fed business outlook survey fell -9.6 to 37.8, stronger than expectations of 32.1.

US Aug pending home sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.1% m/m decline.

Markets are pricing in a 51% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.

EUR/USD (^EURUSD) recovered from a 1.5-month low today and is up +0.25%. Today’s weaker dollar has spurred short covering in the euro. Also, today’s -2% fall in crude oil prices supports the Eurozone economy, which is heavily dependent on imported oil. Euro gains are contained today after Eurozone Aug CPI was revised lower, a dovish factor for ECB policy.

Eurozone Aug CPI was revised lower to +3.2% y/y from the previously reported +3.3% y/y. Aug Core CPI was left unrevised at +2.4% y/y.

The markets are discounting a 52% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.

USD/JPY (^USDJPY) is down by -0.35% today. The yen is moving higher today, supported by the -2% decline in crude oil prices, which supports Japan’s economy and the yen, as Japan imports more than 90% of its energy. Lower T-note yields today are also bullish for the yen. In addition, the yen is supported by expectations that the BOJ will raise interest rates by 25 bp at Friday’s policy meeting.

The yen has some carryover support from last Tuesday, when the Japanese health minister, who oversees the Government Pension Investment Fund (GPIF) that holds $2.1 trillion in assets, said the fund is still considering whether it needs to review its asset allocation. The recent jump in the 10-year Japanese JGB government bond yield to a 30-year high has fueled speculation that the GPIF may boost its allocation to Japanese government bonds, which would support the yen.

Markets are pricing in a 100% chance of a +25 bp BOJ rate hike at Friday’s policy meeting. The government favors a rate hike to support the yen and prevent inflationary pressures stemming from the weak yen. Finally, the yen has ongoing support from the recent coordinated US-Japan intervention and fears that further intervention might be forthcoming if the yen remains weak.

December COMEX gold (GCZ26) is up +20.10 (+0.46%) on Wednesday, and December COMEX silver (SIZ26) is up +1.551 (+2.39%).

Precious metals prices are moving higher today, with silver up sharply at a 1-week high. Today’s weaker dollar supports metals prices. Also, falling global bond yields today are bullish for precious metals. In addition, today’s -2% fall in crude prices is positive for precious metals, as lower crude prices ease inflation expectations and could persuade global central banks to pursue easier monetary policies, a bullish factor for precious metals. Finally, the BOE's decision not to raise interest rates today boosted demand for precious metals as a store of value, amid concerns that the BOE is falling behind the curve on inflation.

Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 6.5-month high today. Long holdings in silver ETFs rose to a 5.5-month high on August 25.

Strong central bank demand for gold is supporting gold prices, after news last Monday that bullion held in China's PBOC reserves rose by +650,000 ounces to 76.73 million troy ounces in August, the largest increase in three years and the twenty-second 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.

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