Dollar Weakens as the Yuan Rallies on Chinese Stimulus Measures

The dollar index (DXY00) today is down by -0.25%.  The dollar is under pressure today after China boosted stimulus measures, which fueled a rally in the yuan to a 16-month high against the dollar. The dollar extended its losses today after the Conference Board’s US Sep consumer confidence index unexpectedly declined.  Hawkish comments today from Fed Governor Bowman limited losses in the dollar. 

The US Jul S&P CoreLogic composite-20 home price index eased to +5.92% y/y from +6.54% y/y in June, the smallest pace of increase in 8 months. 

The Conference Board US Sep consumer confidence index unexpectedly fell -6.9 to 98.7 versus expectations of an increase to 104.0.

The US Sep Richmond Fed manufacturing survey unexpectedly fell -2 to a 4-1/3 year low of -21, weaker than expectations of an increase to -12.

Hawkish comments today from Fed Governor Bowman supported the dollar when she said the Fed should lower interest rates at a "measured" pace, as inflationary risks remain and that the labor market has not shown significant weakening.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and a 54% chance for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) today is up by +0.41%.  The euro today is moderately higher due to a weaker dollar. Also, hawkish comments from ECB Governing Council member Muller boosted the euro when he said ECB policymakers may lack sufficient data to make a decision on interest rates in October. Gains in the euro were limited after the German Sep IFO business confidence index fell more than expected to an 8-month low.

The German Sep IFO business confidence index fell -1.2 to an 8-month low of 85.4, weaker than expectations of 86.0.

ECB Governing Council member Muller said ECB policymakers may lack sufficient data to make a decision on interest rates in October, but "It will be easier to decide in December because then we'll have a full picture with an updated outlook." 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 62% for the October 17 meeting and 100% for that 25 bp rate cut at the December 12 meeting.

USD/JPY (^USDJPY) today is down by -0.06%.  The yen today recovered from a 2-1/2 week low against the dollar and is slightly higher after an unexpected decline in US Sep consumer confidence undercut the dollar.  Today, the yen initially moved lower based on dovish comments from BOJ Governor Ueda, who signaled that the BOJ is in no rush to raise interest rates.  Also, today’s rally in the Nikkei Stock Index to a 3-week high curbed safe-haven demand for the yen.

Today's Japanese economic news was mixed for the yen.  The Japan Sep Jibun Bank manufacturing PMI fell -0.2 to 49.6.  However, the Sep Jibun Bank services PMI rose +0.2 to 53.9, the fastest pace of expansion in 5 months.

BOJ Governor Ueda signaled the BOJ is in no rush to raise interest rates, saying, "In making policy decisions, the BOJ will need to carefully assess factors such as developments in financial and capital markets at home and abroad, and the situation in overseas economies underlying these developments."

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at +22% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) today is up +10.30 (+0.39%), and December silver (SIZ24) is up +0.250 (+0.80%).  Precious metals today are moderately higher, with Dec gold posting a contract high and nearest-futures (U24) gold posting a record high of $2,637 an ounce.  The dollar’s weakness today is supportive of metals prices.  Also, today’s action by China to boost stimulus measures is boosting demand for gold as a store of value.  In addition, fund buying of gold supported gold prices as long gold positions in ETFs rose to a 7-1/2 month high Monday.  Silver has carryover support from today’s rally in copper prices to a 2-1/4 month high after China boosted stimulus measures, which may spur economic growth and boost demand for industrial metals.

• Stocks Climb as Chinese Stimulus Measures Boost Risk Sentiment
• Dollar Moves Higher on Euro Weakness
• Stocks Climb on Optimism Fed Can Achieve a Soft Landing
• Dollar Strengthens on Euro Weakness and Higher T-note Yields

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