Financial Dollar Experiences Slight Increase Prior to Federal Open Market Committee's Decision
In the world of finance, various economic indicators and political events are shaping the market landscape. Today, several key factors are influencing the movement of gold prices, the US dollar, and other currencies.
Gold prices continue to find safe-haven support amidst the uncertainty surrounding US tariffs and President Trump's attacks on Fed independence. Additionally, geopolitical risks and political uncertainty in France and Japan are also driving demand for gold as a safe-haven asset. Notably, gold holdings in ETFs have risen to a 2.25-year high, reflecting this trend.
Meanwhile, the markets are pricing in a 100% chance of a -25 basis point (bp) rate cut by the Federal Reserve (Fed) at today's FOMC meeting. This expectation is putting pressure on the US dollar, causing it to weaken. The dollar's gains are, however, due to weakness in stocks and increased liquidity demand.
The dollar index (DXY00) has increased by 0.07% today, but this growth is relatively minor given the anticipation of a -25 bp interest rate cut by the Fed. The yen, on the other hand, has climbed to a 1.75-month high against the dollar, with USD/JPY down by -0.16%.
The US housing market also saw a downturn, with Aug housing starts falling -8.5% month-on-month (m/m) to 1.307 million, and building permits unexpectedly fell -3.7% m/m to a 5.25-year low of 1.312 million. These figures are bearish for the housing sector and could potentially impact the broader economy.
In the Eurozone, Aug CPI was revised lower to +2.0% year-on-year (y/y) from the previously reported +2.1% y/y. This revision has contributed to the EUR/USD's decline by -0.09% today.
Japanese political developments are also impacting the financial markets. Japanese Minister of Agriculture Koizumi announced his intention to 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 Bank of Japan's interest rate path, which could potentially lead to further yen strength.
However, the markets are discounting an 86% chance of a second -25 bp rate cut at the next FOMC meeting on Oct 28-29. This suggests that the Fed's easing measures may continue through the end of the year, which could be bearish for the dollar.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the European Central Bank (ECB) at the October 30 policy meeting. This indicates a more cautious approach by the ECB compared to the Fed.
In Japan, Aug exports fell -0.1% y/y, a smaller decline than expectations of -2.0% y/y. Aug imports fell -5.2% y/y, weaker than expectations of -4.1% y/y. These figures suggest a mixed picture for Japan's trade balance.
France and Japan have also seen political upheavals. French Prime Minister Bayrou resigned after losing a confidence vote in parliament last week, while 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.
Silver prices extended their losses today after US Aug housing starts and building permits fell more than expected, a bearish factor for industrial metals demand. Silver holdings in ETFs, however, rose to a 3-year high on September 3.
In conclusion, a mix of economic indicators and political events are shaping the financial markets today. Gold prices are finding support as a safe-haven asset, while the US dollar is under pressure due to expectations of a -25 bp interest rate cut by the Fed. The yen, on the other hand, is strengthening against the dollar. The housing sector in the US has seen a downturn, and the Eurozone has revised its CPI lower. Japanese and French politics have also contributed to the market volatility.
