The dollar index (DXY00) is up by +0.17% today. The weakness in stocks today has boosted some liquidity demand for the dollar. Also, today’s report on the July Chicago Fed national activity index was stronger than expected, supportive of the dollar. Gains in the dollar are limited by today’s report from CNBC that said the Treasury could use the Treasury General Account, which had a balance of $935 billion on August 20, to fund expanded buybacks of higher-yielding, older government securities. Also, today’s decline in WTI crude oil by more than -1% lowers inflation expectations and is dovish for Fed policy.
The US July Chicago Fed national activity index fell -0.14 to -0.08, slightly stronger than expectations of -0.09.
Join 200K+ Subscribers:
Find out why the midday Barchart Brief newsletter is a must-read for thousands daily.
Markets await a press conference later today from US Treasury Secretary Bessent, who will detail plans to isolate Iran’s economy. Mr. Bessent told the Financial Times that “The world should realize that our objective is to sever every economic lifeline that sustains the tyrannical regime until Iran stands alone.” Iran’s secretary of the Supreme National Security Council responded by saying, “Iran will regard any country’s participation in or support for America’s economic war against the Iranian people as an act of war and not a single drop of oil will be exported, neither through the Strait of Hormuz nor from anywhere in the Persian Gulf.”
The markets are discounting a 40% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) is down by -0.09% today. Dollar strength is weighing on the euro today. Also, comments today from ECB Executive Board member Piero Cipollone undercut the euro when he said raising interest rates to stabilize inflation could dampen economic growth. Euro losses are limited amid today’s weakness in crude oil prices, which supports the Eurozone economy and the euro, as Europe imports most of its energy.
ECB Executive Board member Piero Cipollone said, “In the event of a supply side shock, such as the oil shock, hiking interest rates so as to stabilize inflation around the target could dampen economic growth that is already affected by a negative shock.”
The markets are discounting a 96% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) is up by +0.11% today. The yen continues to suffer from weak interest rate differentials, with the BOJ’s current policy rate of 1.00% well below the Fed’s federal funds rate target range of 3.50%-3.75%.
Losses in the yen are limited, as today’s -1% decline in crude oil prices is positive for Japan’s economy and the yen, as Japan imports more than 90% of its energy. Also, lower T-note yields today support the yen.
The yen has underlying support from increased expectations of a BOJ rate hike in either September or October. The government favors a rate hike to support the yen and prevent inflationary pressures stemming from the weak yen. Finally, the yen has ongoing support from the recent coordinated US-Japan intervention and fears that further intervention might be forthcoming if the yen remains weak. The markets are discounting an 80% chance of a +25 bp BOJ rate hike at the September 18 policy meeting.
October COMEX gold (GCV26) is up +32.70 (+0.70%) today, and September COMEX silver (SIU26) is down -0.730 (-1.0%).
Precious metals prices are mixed today, with gold rallying to a 3.5-month high. Precious metals have support from today’s -1% fall in crude oil prices, which lowers inflation expectations that could persuade the world’s central banks to loosen monetary policy, a bullish factor for precious metals. Also, today’s report from CNBC is bullish for precious metals as the report said the Treasury could use the Treasury General Account to fund expanded buybacks of longer-dated US government bonds, bolstering concerns over dollar debasement and increasing demand for precious metals as a store of value. Today’s dollar strength is limiting gains in gold and weighing on silver prices.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 3-month high today. Long holdings in silver ETFs also rose to a 4-month high last Wednesday.
Strong central bank demand for gold is supportive of gold prices, following the Aug 7 news that bullion held in China’s PBOC reserves rose by +640,000 ounces to 76.08 million troy ounces in July, the twenty-first 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.
More news from Barchart
