The dollar index (DXY00) on Wednesday fell from a 1-week high and finished down by -0.04%. The dollar relinquished early gains on Wednesday and turned lower after a Reuters report stated that the Trump administration is considering broad restrictions on exports to China made with US software in retaliation for China’s latest round of rare earth export restrictions. The ongoing shutdown of the US government is also bearish for the dollar. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
The dollar initially rallied to a …
The dollar index (DXY00) on Wednesday fell from a 1-week high and finished down by -0.04%. The dollar relinquished early gains on Wednesday and turned lower after a Reuters report stated that the Trump administration is considering broad restrictions on exports to China made with US software in retaliation for China’s latest round of rare earth export restrictions. The ongoing shutdown of the US government is also bearish for the dollar. The longer the shutdown is maintained, the more likely the US economy will suffer and the more likely the Fed will have to cut interest rates.
The dollar initially rallied to a 1-week high on Wednesday due to the weakness of the British pound. (GBP/USD) fell to a 1-week low on Wednesday due to a weaker-than-expected UK Sep CPI report, which could push the BOE to cut interest rates.
The markets are pricing in a 97% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD ([^EURUSD](https://www.barchart.com/forex/quotes/%5EEURUSD/overview)) on Wednesday recovered from a 1-week low and finished up by +0.09%. Short covering in EUR/USD pushed the euro higher on Wednesday after the dollar fell from a 1-week high and turned lower. Also, hawkish comments on Wednesday from ECB Vice President Guindos supported the euro when he said the current ECB interest-rate level is “adequate.”
The euro has underlying strength due to central bank divergence, with the Fed expected to continue cutting interest rates, while the ECB is nearing the end of its rate-cutting cycle.
ECB Vice President Guindos said, “The current ECB interest-rate level is adequate as the path forward for inflation looks positive,” and risks to the outlook for consumer-price growth are balanced.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY ([^USDJPY](https://www.barchart.com/forex/quotes/%5EUSDJPY/overview)) on Wednesday fell by -0.01%. Japanese trade news on Wednesday was supportive of the yen after Japan’s September exports and imports increased. Also, lower T-note yields on Wednesday were bullish for the yen. Gains in the yen are limited due to concerns that new Japanese Prime Minister Takaichi will advocate for a less hawkish monetary policy, which would be a bearish factor for the yen.
Japanese trade news was supportive of the yen. Japan Sep exports rose +4.2% y/y, the largest increase in seven months, but weaker than expectations of +4.4% y/y. Sep imports rose +3.3% y/y, stronger than expectations of +0.6% y/y and the biggest increase in eight months.
December COMEX gold (GCZ25) on Wednesday closed down -43.70 (-1.06%), and December COMEX silver (SIZ25) closed down -0.023 (-0.05%). Gold and silver prices added to Tuesday’s sharp losses and posted 1-week lows. Precious metals prices extended Tuesday’s rout on Wednesday due to technical selling, as prices had become extremely overbought after surging to all-time highs last week. Hawkish comments on Wednesday from ECB Vice President Guindos also weighed on gold prices when he said, “The current ECB interest-rate level is adequate.”
Gold and silver prices rallied to record highs last week as they extended their two-month-long parabolic rally. Precious metals continue to receive safe-haven support due to the ongoing US government shutdown, uncertainty tied to US tariffs, geopolitical risks, central bank buying, US-China trade tensions, and President Trump’s attempts to undercut Fed independence. In addition, recent weaker-than-expected US economic news has bolstered the outlook for the Fed to keep cutting interest rates, a bullish factor for precious metals.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 3-year high on Tuesday, and silver holdings in ETFs rose to a 3.25-year high on the same day.
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.
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