Dollar Pressured as Fed Chair Powell Refrains from Forward Guidance

The dollar index (DXY00) tumbled to a 2-week low today and is down by -0.34%.  The dollar came under pressure today after Fed Chair Powell refrained from providing guidance on monetary policy or the economy during a speech at the annual IMF meeting in Bangkok.  Mr. Powell’s lack of guidance reduced the chance of a Fed rate hike later this month to 13% from 27% on Thursday.  A stronger Chinese yuan is also weighing on the dollar after it rose to a 4-year high today.

The dollar recovered from its worst level after US import prices ex-petroleum rose the most in 5 months last month, a hawkish factor for Fed policy, and after manufacturing production rose as expected last month. 

The US Sep import price index ex-petroleum rose +0.8% m/m, stronger than expectations of +0.6% m/m and the largest increase in 5 months.

US Sep manufacturing production rose +0.3% m/m, right on expectations.

Markets are pricing in a 13% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28. 

EUR/USD (^EURUSD) rose to a1.5-week high today and is up by +0.33%.  Dollar weakness today is supportive for the euro.   Also, hawkish comments today from ECB Governing Council member Nagel gave the euro a boost when he said the ECB may have to raise interest rates further to tame inflation.  In addition, today’s surge in European nat-gas prices to 3.75-year high is negative for the Eurozone economy and the euro, as Europe imports most of its energy.

ECB Governing Council member and Bundesbank President Joachim Nagel said. "The ECB has raised interest rates twice, and if the situation remains as it is, we don't rule out the possibility that we may have to take further action."

The markets are discounting a 8% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.

USD/JPY (^USDJPY) is down by -0.17% today.  The yen is moving higher today amid a weaker dollar.  Hawkish comments from BOJ Governor Ueda also boosted the yen when he said the BOJ will continue raising interest rates.  Yen gains are limited after a +1% rebound in the Nikkei Stock Index today reduced safe-haven demand for the currency. 

BOJ Governor Kazuo Ueda said, "Given that the underlying inflation rate is approaching 2% and that current financial conditions remain accommodative, I believe we will continue to raise the policy interest rate in response to developments in the economy, prices, and financial conditions."  He added that he "can't tolerate" underlying inflation rising further above 2%.

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) is up +41.30 (+0.99%) today, and December COMEX silver (SIZ26) is up +0.744 (+1.30%).

Precious metals prices are climbing today after the dollar index tumbled to a 2-week low.  Also, Fed Chair Powell's lack of guidance on the economy or monetary policy at the IMF’s annual meeting reduced the chance of a Fed rate hike at the October 27-28 FOMC meeting to 13% from 27%, supporting precious metals. 

Hawkish central bank comments today are negative for precious metals after ECB Governing Council member Joachim Nagel said the ECB may have to raise rates further to contain inflation, and BOJ Governor Kazuo Ueda said the BOJ will continue to raise interest rates.

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 today.

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.