The dollar index (DXY00) on Friday fell by -0.41%. The dollar was under pressure after Friday’s report on the August core PCE price index, the Fed’s preferred gauge of inflation, came in right on expectations, which may allow the Fed to keep easing monetary policy. The dollar extended its losses on Friday after the University of Michigan’s US September consumer sentiment index was unexpectedly revised lower to a four-month low.
Losses in the dollar were limited as Friday’s better-than-expected reports on Aug personal spending and income show economic strength that is supportive of the dollar. Also, hawkish comments on Friday from Richmond Fed President Tom Barkin were bullish for the dollar, as he stated that the uncertainty that pervaded the economic outlook earlier in the year has started to lift for US companies.
US Aug personal spending rose by +0.6% m/m, stronger than expectations of +0.5% m/m and the largest increase in 5 months. Aug personal income rose +0.4% m/m, stronger than expectations of +0.3% m/m.
The US Aug core PCE price index, the Fed’s preferred gauge of inflation, rose +0.2% m/m and +2.9% y/y, right on expectations.
The University of Michigan US Sep consumer sentiment index was unexpectedly revised lower to a 4-month low of 55.1, weaker than expectations of no change at 55.4.
The University of Michigan US Sep 1-year inflation expectations were revised lower to 4.7% from the previously reported 4.8%. Also, the Sep 5-10 year inflation expectations were revised downward to 3.7% from the previously reported 3.9%.
Richmond Fed President Tom Barkin said the uncertainty that pervaded the economic outlook earlier in the year has started to lift for US companies, and he sees a limited risk of further deterioration in employment and inflation.
The markets are pricing in a 90% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Friday rose by +0.32%. Friday’s weaker dollar was supportive of the euro. Also, Friday’s monthly report from the ECB on inflation expectations was stronger than expected, hawkish for ECB policy, and bullish for the euro.
The euro also has support from central bank divergence, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly two more times by the end of this year.
The ECB Aug 1-year CPI expectations unexpectedly rose to 2.8% from 2.6% in July, stronger than expectations of a decline to 2.5%. The ECB Aug 3-year CPI expectations were unchanged from July at 2.5%, stronger than expectations of a decline to 2.4%.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.
USD/JPY (^USDJPY) on Friday fell by -0.20%. The yen rebounded from a 1.75-month low against the dollar on Friday and moved higher as the dollar weakened on an as-expected US inflation report. The yen initially moved lower on Friday after Japan’s Sep Tokyo CPI rose less than expected, a dovish factor for BOJ policy.
The Japan Sep Tokyo CPI was unchanged from Aug at +2.5% y/y, weaker than expectations of an increase to +2.8% y/y. Sep Tokyo CPI ex-fresh food and energy fell to +2.5% y/y from +3.0% y/y in Aug, weaker than expectations of +2.9% y/y.
December gold (GCZ25) on Friday closed up +37.90 (+1.01%), and December silver (SIZ25) closed up +1.542 (+3.42%). Precious metal prices rallied sharply on Friday, with Dec silver posting a contract high and nearest-futures (U25) posting a 14-year high.
Precious metals settled sharply higher on Friday due to a weaker dollar. Also, Friday’s benign inflation report on US Aug core PCE prices may prompt the Fed to keep cutting interest rates, a bullish factor for metals. Silver prices also garnered support from Friday’s better-than-expected US Aug personal spending report, a positive factor for economic growth and industrial metals demand.
Precious metals continue to receive safe-haven support due to uncertainty tied to US tariffs, a possible US government shutdown next week, and the outlook for the Fed to cut interest rates by another 50 bp this year. Also, President Trump’s attacks on Fed independence are boosting demand for gold, as he attempts to fire Fed Governor Cook. Additionally, Stephen Miran’s intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors contributes to this uncertainty. Finally, geopolitical risks and global trade tensions have boosted safe-haven demand for precious metals.
Friday’s hawkish comments from Richmond Fed President Tom Barkin were bearish for gold as he stated he sees limited risk of further deterioration of employment and inflation. Also, today’s rally in stocks has curbed some safe-haven demand for precious metals.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a nearly 3-year high on Thursday, and silver holdings in ETFs rose to a 3-year high on Wednesday.
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. This article was originally published on Barchart.com
