The dollar index (DXY00) rose by +0.15% on Monday. Political risk and social unrest in France are weighing on the euro, benefiting the dollar. Also, WTI crude oil jumped more than 2% on Monday to a 5-week high, raising inflation expectations and potentially pushing the Fed to tighten monetary policy, which supports the dollar.
However, the dollar fell from its best level on Monday after the US Oct NAHB housing market index fell more than expected to a 14-year low. The dollar was also under pressure after the Chinese yuan rallied to a 4-year high on Monday, undercutting the dollar. In addition, Monday’s stock strength has reduced demand for dollar liquidity.
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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) fell by -0.24% on Monday. Political risks and social unrest in France over the cost of living are weighing on the euro. Also, Monday’s rally in European nat-gas prices to a 3.75-year high and 2% jump in crude oil prices to a 5-week high are negative for the Eurozone economy amid the euro, as Europe imports most of its energy. Losses in the euro were limited after the German Bundesbank said in a report Monday that “inflation risks are clearly tilted to the upside,” a hawkish factor for ECB policy
The markets are discounting a 9% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.
USD/JPY (^USDJPY) rose by +0.32% on Monday. Dollar strength on Monday weighed on the yen. Higher T-note yields on Monday were also bearish for the yen. Losses in the yen accelerated on Monday after crude oil prices rose more than +2% to a 5-week high, which is negative 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 4% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.
December COMEX gold (GCZ26) closed down -21.00 (-0.50%) on Monday, and December COMEX silver (SIZ26) closed down -0.032 (-0.06%).
Precious metals gave up an early advance on Monday and moved lower as stronger stocks reduced safe-haven demand. Also, today’s Bundesbank report said, “inflation risks are clearly tilted to the upside,” which is hawkish for ECB policy and negative for precious metals. Precious metals added to their losses after WTI crude oil jumped more than +2% to a 5-week high, raising inflation expectations and potentially prompting the world’s central banks to tighten monetary policy, a bearish factor for the metals.
