Dollar Moves Higher on Safe-Haven Demand

The dollar index (DXY00) is up +0.06% on some safe-haven demand tied to today’s sharp sell-off in tech stocks and Middle East tensions.  The safe-haven demand has outweighed the bearish factor of today’s -8 bp decline in the US 10-year T-note yield.  Also on the bearish side for the dollar, the odds of a Fed rate hike at next week’s meeting declined to 11% today from 15% on Wednesday.

Tensions are high in the Middle East as there were several attacks in the past two days by the Houthi militia on targets in Saudi Arabia, including an oil field, a port, and an airport in Dammam.  Also, the US State Department yesterday afternoon said it was evacuating non-essential personnel and families from Saudi Arabia, leading to speculation about whether the US might be planning new military attacks on Iran and/or the Houthi militia in Yemen after the US election.

Markets are pricing in an 11% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28. 

EUR/USD (^EURUSD) is down -0.26%.  The stronger dollar undercut the euro.  The euro also continues to be undercut by the social unrest in France, which could be causing some foreign investors to flee French assets. 

The French bond market has recently been in a near-crisis mode, with the 10-year spread over Germany rising to a 15-year high of 175 bp.  The French 10-year OAT bond yield today rose +6 bp to a 24-year high of 5.07%, up by more than a full percentage point from the 4% level seen just two months ago in August.

Markets are pricing in a 3% chance of a +25 bp ECB rate hike at next week’s ECB policy meeting on October 29.

USD/JPY (^USDJPY) is down -0.58%.  The yen rallied on some repatriation demand after today’s -2.65% sell-off in the Nikkei index.  The yen found support Tuesday after Reuters reported that the BOJ will raise its inflation forecast for fiscal 2027 at next week’s policy meeting, a hawkish factor for BOJ policy.

Markets are pricing in a 2% chance of a +25 bp BOJ rate hike at next week’s policy meeting on October 30.

December COMEX gold (GCZ26) is down -86.5 (-2.07%), and December COMEX silver (SIZ26) is down -2.350 (-4.07%).

Precious metals are sharply lower today on risk-off sentiment.  Some investors may be dumping precious metals positions to cover margin losses on stocks. Crypto is also taking a hit today, with Bitcoin down more than -3%.

Gold is trading lower despite the bullish factors of a -8 bp decline in the 10-year T-note yield and slightly lower odds for a Fed rate hike next week.

Gold is also trading lower despite safe-haven support from higher tensions in the Middle East with continued attacks by the Houthis on Saudi targets and the US State Department’s evacuation order yesterday for non-essential personnel and families in Saudi Arabia.

Gold prices were undercut Tuesday when Russia’s central bank reported reducing its gold reserves to 72.8 million ounces as of October 1, the lowest level in 7 years.  Russia’s central bank is the sixth largest holder of gold among the world’s central banks.

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

Strong central bank demand for gold is supporting gold prices, after recent 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.