Dollar Sees Support as T-note Yields Rise

The dollar index (DXY00) is up +0.10%, supported by today’s +4 bp rise in the 10-year T-note yield.  The dollar also found support from today’s stronger-than-expected US manufacturing PMI and consumer sentiment reports.

The dollar has safe-haven support from Middle East tensions as concerns continue about Houthi attacks on Saudi Arabia and speculation about whether the US and Israel will launch new military attacks on Iran and/or the Houthis after next week’s Israeli election and the November 3 US election.

The New York Times reported Thursday that the US and Israeli militaries have developed specific plans for renewed military strikes against Iran after the US and Israeli elections, although the report said President Trump has not yet approved those plans. 

Meanwhile, President Trump’s Ambassador to the UN, Mike Waltz, told the Financial Times that the US is preparing for a protracted struggle with Iran and could still be mired in a stalemate a year from now.  He added that the US Navy can maintain its blockade of Iranian ports for the “foreseeable future” and the administration is tightening economic pressure on Tehran.

The preliminary Oct S&P US manufacturing PMI rose +0.1 to 56.0, stronger than expectations for a -0.4 point decline to 55.5.  The preliminary Oct S&P US services PMI fell by -0.9 to 57.9, slightly weaker than expectations for a -0.8 point decline to 58.0.

The final-Oct University of Michigan US consumer sentiment index was revised higher by +1.7 points to 48.0 from the preliminary 46.3, stronger than market expectations for an unrevised 46.3.  However, the final-Oct index of 48.0 was down by -0.1 point from September’s report of 48.1 and posted a 5-month low.

Markets are pricing in an 8% chance of a +25 bp Fed rate hike at next week’s FOMC meeting on October 27-28. 

EUR/USD (^EURUSD) is down -0.14% due to the stronger dollar. Social unrest in France continues to undercut the euro, along with the debacle in the French government bond market, where yields rose to a 24-year high this week.

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 up +0.06%.  The yen is seeing some weakness today after its +0.8% rally against the dollar on Thursday on the plunge in global stocks, which sparked repatriation demand for the yen from Japanese investors. 

Reuters reported Tuesday that the BOJ will raise its inflation forecast for fiscal 2027 at next week’s policy meeting, a hawkish factor for BOJ policy.  However, the odds of a BOJ rate hike next week are very low.  The odds are much higher at 76% for a BOJ rate hike at the following policy meeting on December 18 as the BOJ tries to curb inflation and provide underlying support for the yen.

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 -62.0 (-1.53%), and December COMEX silver (SIZ26) is down -1.517 (-2.76%).

Precious metals are lower again today, pressured by continued stock weakness and investors covering losses. Gold is also under downward pressure today from the +4 bp rise in the 10-year T-note yield and a slightly stronger dollar.

Gold has underlying safe-haven support from higher tensions in the Middle East, with persistent attacks by the Houthis on Saudi targets and speculation about a possible new US military attack on Iran after the election.

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 4.25-year high on Wednesday before backing off slightly on Thursday. Long holdings in silver ETFs rose to a 7-month high on Wednesday. 

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.