Strengthened Bond Interest Rates Propel the US Dollar
In the financial world today, various central bank announcements and economic indicators are shaping the movements of global currencies.
Higher T-note yields are supporting gains in the dollar today, as investors seek out safer assets amidst economic uncertainties. However, the dollar's advance was temporarily halted after Minneapolis Fed President Neel Kashkari stated that he has penciled in two additional us bank rate cuts this year. As a result, the dollar fell back from its best level, with the USD/JPY down by -0.08%.
In Japan, the Aug national CPI rose by +2.7% y/y, weaker than expectations of +2.8% y/y, marking the slowest pace of increase in 10 months. Despite this, the yen recovered from overnight losses and is slightly higher on signs that the Bank of Japan (BOJ) is tightening monetary policy, as the BOJ voted 7-2 to keep the overnight call rate unchanged at 0.50% and plans to sell 330 billion yen of its stock market today holdings per year.
Across the Atlantic, the euro is facing pressure due to central bank divergence. The markets view the European Central Bank (ECB) as largely finished with its rate-cut cycle, while the Federal Reserve is expected to cut rates by roughly two more times by the end of this year. Losses in the euro are contained due to this dynamic, with EUR/USD down by -0.25%.
In the Eurozone, deflation concerns are dovish for ECB policy and negative for the euro. Meanwhile, the ECB Governing Council members Muller and Centeno have issued contrasting statements about future monetary policy. While Muller stated the ECB has no reason to lower borrowing costs any further, Centeno stated he believes more likely than not that the ECB will have to ease monetary policy further.
Meanwhile, the gold and silver markets are experiencing a surge. December gold (GCZ25) is up +15.40 (+0.42%) and December silver (SIZ25) is up +0.492 (+1.17%). This rise in precious metals can be attributed to increased demand in ETF holdings, with gold holdings reaching a 2.25-year high on Thursday, and silver holdings reaching a 3-year high on Wednesday.
In the United States, the markets are pricing in a 91% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. The appointment of Stephen Miran, a Harvard economist and Trump confidant, as a temporary dollar general governor is seen as a key part of Trump's effort to reshape the Fed towards rapid interest rate cuts. However, Miran's intention to serve as a Fed Governor while still technically holding his White House job on the Council of Economic Advisors contributes to uncertainty in the markets.
Lastly, the dollar index (DXY00) has increased today by +0.22%, with the dollar climbing today due to weakness in the British pound, which fell to a 2-week low. These developments demonstrate the dynamic and interconnected nature of global currency markets, as they respond to a variety of economic indicators and central bank policies.
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