The dollar index (DXY00) on Wednesday rose by +0.02%. The dollar moved slightly higher on Wednesday due to weakness in the euro after EUR/USD fell to a 3-week low. However, the dollar gave up most of its advance as T-note yields tumbled, with the 10-year T-note yield falling to a 1.5-week low, which weakened the dollar’s interest rate differentials.
Gains in the dollar were also limited due to concern over the Fed’s independence and fears about capital flight with President Trump’s move to fire Fed Governor Lisa Cook. If Mr. Trump succeeds in firing Fed Governor Cook, foreign investors may lose faith in the Fed and the dollar and swap their dollar assets into non-dollar investments.
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New York Fed President Williams said the US economy is slowing, not stalling, and he is optimistic about the state of the economy. He added that every FOMC meeting is "live" for interest rates and that at some point, it will be appropriate for us to adjust rates downward as we remain in a "modestly restrictive" stance on policy.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 86% at the September 16-17 FOMC meeting and at 53% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) on Wednesday fell by -0.10% and posted a 3-week low. The euro came under pressure on Wednesday after the German Sep GfK consumer confidence survey unexpectedly fell to a 5-month low. Also, political turmoil in France is bearish for the euro, following French Prime Minister Bayrou's call for a confidence vote that could bring down his government as soon as next month.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, as the US tries to broker a peace deal between the two countries. On Sunday, Russian Foreign Minister Lavrov said there was no meeting planned between the leaders of Russia and Ukraine and that there "needs to be an agenda first" before a meeting can take place. "This agenda is not ready at all." The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) on Wednesday rose by +0.05%. Dollar strength on Wednesday weighed on the yen. Also, safe-haven demand for the yen subsided after the Nikkei Stock Index rose by +0.30% Wednesday. However, the yen recovered almost all of its losses after T-note yields gave up an early advance and turned lower.
December gold (GCZ25) on Wednesday closed up +15.60 (+0.45%), and September silver (SIU25) closed up +0.107 (+0.28%). Precious metal prices recovered from early losses on Wednesday and moved higher, with gold prices climbing to a new two-week high. President Trump's move to fire Fed Governor Lisa Cook has sparked concerns about the Fed's independence and increased demand for safe-haven assets, including precious metals. Also, political uncertainty in France is driving demand for gold as a safe-haven, following French Prime Minister Bayrou's call for a confidence vote that could bring down his government as soon as next month. In addition, rising inflation expectations are boosting demand for gold as an inflation hedge, following the US 10-year breakeven inflation rate's jump to a 6-month high on Wednesday at 2.456%.
Gold has continued safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East. The fund buying of precious metals continues to support prices, following the rise in gold holdings in ETFs to a 2-year high on August 15 and the rise in silver holdings in ETFs to a 3-year high on Tuesday.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
