Dollar Falls on Dovish Fed Comments

The dollar index (DXY00) fell by -0.40% on Tuesday.  The dollar was under pressure on Tuesday from dovish Fed comments. Fed Governor Christopher Waller said the recent surge in long-term bond yields is doing some of the Fed's work to tighten monetary policy, suggesting he favors holding policy steady at the FOMC meeting later this month. Also, New York Fed President John Williams said, "It may be appropriate for one more 25 bp Fed rate hike this year, but I don't think at this time I have any reason to believe that we would need to do more."

Losses in the dollar were limited on Tuesday after Sep existing home sales unexpectedly rose.  Also, hawkish comments from Chicago Fed President Austan Goolsbee were supportive fr the dollar when he said inflation tied to the AI boom is "jumping out of its lane" and starting to push up prices in unrelated corners of the economy.

US Sep existing home sales unexpectedly rose +1.5% m/m to 3.99 million, stronger than expectations of a decline to 3.95 million.

The International Monetary Fund (IMF) raised its 2026 global GDP forecast to 3.1% from 3.0% in July, and kept its 2026 global consumer price forecast unchanged from July at 4.7%.

Markets are pricing in a 22% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28. 

EUR/USD (^EURUSD) rose by +0.39% on Tuesday.  Dollar weakness on Tuesday spurred some short covering in the euro.  Concerns over France’s debt burden continue to plague the euro, along with fears of contagion of France’s debt woes to other European countries.

The markets are discounting a 12% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.

USD/JPY (^USDJPY) fell by -0.18% on Tuesday.  The yen moved higher on Tuesday amid a weaker dollar.  Lower T-note yields on Tuesday also boosted the yen. 

Yen gains were limited on Tuesday after Japan’s Sep producer prices rose less than expected, a dovish factor for BOJ policy.  Also, Japan’s 10-year JGB yield fell to a 3-week low of 3.002% on Tuesday, narrowing the yen’s interest rate differentials. 

Japan Sep PPI rose +0.3% m/m and +6.8% y/y, weaker than expectations of +0.5% m/m and +7.6% y/y. 

According to people familiar with the matter, BOJ officials pushed back against an interest rate hike at this month's policy meeting, saying they see little need for consecutive rate hikes in the absence of signs that upside inflation risks will increase abruptly.

Markets are pricing in a 6% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.

December COMEX gold (GCZ26) closed down -13.30 (-0.32%) on Tuesday, and December COMEX silver (SIZ26) closed down -0.988 (-1.63%).

Precious metals prices gave up an early advance on Tuesday and settled lower after hawkish Fed comments spurred long liquidation in gold and silver.  Chicago Fed President Austan Goolsbee said inflation tied to the AI boom is "jumping out of its lane" and starting to push up prices in unrelated corners of the economy. 

Precious metals initially moved higher on Tuesday as the dollar weakened and after global bond yields declined. Dovish Fed comments on Tuesday also supported precious metals after Fed Governor Christopher Waller said the recent surge in long-term bond yields is doing some of the Fed's work to tighten monetary policy, suggesting he favors holding policy steady at the FOMC meeting later this month.  Also, New York Fed President John Williams said that after the Fed hikes interest rates one more time this year, he believes the Fed rate-hike cycle is finished. 

Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 4-year high last Thursday.  Long holdings in silver ETFs rose to a 6.5-month high on September 22.

Strong central bank demand for gold is supporting gold prices, after last Thursday’s 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.