The dollar index (DXY00) today is down by -0.42% at a 2.25-month low. The dollar remains under pressure today on expectations for the Fed to cut interest rates by -25 bp at Wednesday’s conclusion of the 2-day FOMC meeting.  Also, increased expectations for Fed easing through year-end are bearish for the dollar.  Losses in the dollar were contained after US retail sales rose more than expected and US manufacturing production unexpectedly increased. 

The dollar is also being undercut by concerns over Fed independence, which could prompt foreign investors to dump dollar assets as President Trump attempts to fire Fed Governor Cook, and by Stephen Miran’s intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors. 

US Aug retail sales rose +0.6% m/m, stronger than expectations of +0.2% m/m.  Also, Aug retail sales ex-autos rose +0.7% m/m, stronger than expectations of +0.4% m/m. 

The US Aug import price index ex-petroleum rose +0.2% m/m, stronger than expectations of +0.1% m/m.

US Aug manufacturing production unexpectedly rose +0.2% m/m versus expectations for a -0.2% m/m decline.

The US Sep NAHB housing market index was unchanged at a 2.75-year low of 32, weaker than expectations of an increase to 33.

The markets are pricing in a 100% chance of a -25 bp rate cut and a 5% chance of a 50 bp rate cut at this week’s Tue/Wed FOMC meeting.  After the fully expected -25 bp rate cut at this week’s meeting, the markets are discounting an 84% chance of a second -25 bp rate cut at the next FOMC meeting on Oct 28-29.  The markets are now pricing in an overall -69 bp rate cut in the federal funds rate by year-end to 3.64% from the current 4.33% rate.

EUR/USD (^EURUSD) today is up by +0.69% at a 4-year high.  Dollar weakness today is pushing the euro higher. Central bank divergence is also supporting the euro, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly three times by the end of this year.  The euro added to its gains today on hawkish comments from ECB Governing Council member Simkus, who said the ECB is close to the end of its rate-cutting cycle. 

Today’s Eurozone economic news was mixed for the euro, with Eurozone Q2 labor costs increasing from Q1 and the German Sep ZEW survey expectations of economic growth unexpectedly rising.  However, Eurozone July industrial production rose less than expected. 

Eurozone July industrial production rose +0.3% m/m, weaker than expectations of +0.4% m/m, but June was revised upward to -0.6% m/m from -1.3% m/m.

Eurozone Q2 labor costs increased to +3.6% y/y from +3.4% y/y in Q1. 

The German Sep ZEW survey expectations of economic growth unexpectedly rose +2.6 to 37.3, stronger than expectations of a decline to 25.0.

ECB Governing Council member Simkus said, “It is clear that inflation in the Eurozone is currently at the target level, and if we look at the medium term, it is still hovering around 2% or very close to it.  Given these trends, the sequence of interest rate cuts by the ECB is very close to the end.”

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) today is down by -0.55%.  Dollar weakness today is supporting gains in the yen. Also, today’s stronger-than-expected Japan tertiary index was positive for the yen.  The yen added to its gains today after Japanese Minister of Agriculture Koizumi said he will run in the party leadership race of the ruling Liberal Democratic Party.  Koizumi is seen as hawkish on fiscal policy and less likely to try to influence the BOJ’s interest rate path.

The Japan July tertiary index rose +0.5% m/m, stronger than expectations of +0.1% m/m.

December gold (GCZ25) today is up +15.00 (+0.40%), and December silver (SIZ25) is up +0.313 (+0.73%).  Precious metal prices are moving higher today, with Dec gold posting a contract high and nearest-futures (U25) gold posting an all-time high of $3,698.60 an ounce.  Also, Dec silver posted a contract high, and nearest-futures (U25) silver posted a 14-year high. 

Today’s slump in the dollar index to a 2.25-month low is bullish for metals.  Also, expectations for at least a -25 bp rate cut by the Fed at the Tue/Wed FOMC meeting are supportive for precious metals.  The markets are also pricing in roughly three Fed rate cuts by year-end, a bullish factor for precious metals.  Silver prices added to their gains today after US Aug manufacturing production unexpectedly increased, a supportive factor for industrial metals demand.

Gains in precious metals are limited due to hawkish central bank comments.  ECB Governing Council member Simkus said today that the ECB is close to the end of its rate-cutting cycle. 

Gold prices continue to receive support from uncertainty tied to US tariffs and geopolitical risks. Also, political uncertainty in France and Japan is driving demand for gold as a safe-haven asset.  French Prime Minister Bayrou resigned after losing a confidence vote in parliament last week.  Also, Japanese Prime Minister Ishiba resigned last week following two election results that stripped Japan’s ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy. 

Precious metals prices continue to receive support from fund buying of precious metal ETFs.  Gold holdings in ETFs rose to a 2.25-year high last Wednesday, and silver holdings in ETFs rose to a 3-year high on September 3.