The dollar index (DXY00) on Thursday rose by +0.50%.  The dollar moved higher Thursday on positive carryover from Wednesday when Fed Chair Powell said higher goods prices are feeding through to inflation and that the FOMC expects inflation to continue to build into next year, which may limit how much more the Fed can cut interest rates.  The dollar added to its gains Thursday after T-note yields rose when US weekly jobless claims fell more than expected, and the Sep Philadelphia Fed business outlook survey rose more than expected to an 8-month high, hawkish factors for Fed policy.

The dollar is 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 weekly initial unemployment claims fell by -33,000 to 231,000, showing a stronger labor market than expectations of 240,000.

The US Sep Philadelphia Fed business outlook survey rose +23.5 to an 8-month high of 23.2, stronger than expectations of 1.7.

US Aug leading indicators fell -0.5% m/m, weaker than expectations of -0.2% m/m and the biggest decline in four months.

Following Wednesday’s -25 bp rate cut, the markets are now pricing in a 93% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.

EUR/USD (^EURUSD) on Thursday fell by -0.20%.  The euro was under pressure Thursday from a stronger dollar. Also, fiscal concerns are undercutting the euro after the German government said Thursday that it will borrow about 20% more than originally planned in Q4 to help fund a surge in spending on infrastructure and the armed forces. 

Losses in the euro are contained due to 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.

Germany’s finance agency, which manages federal government debt, said it plans to raise 90.5 billion euros ($107 billion) in Q4, which is 15 billion euros more than the agency projected in December.

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) on Thursday rose by +0.59%.  The yen was under pressure Thursday and fell to a 1-week low due to a stronger dollar.  Also, Thursday’s rally in the Nikkei Stock Index to a new record high has reduced safe-haven demand for the yen.  Losses in the yen accelerated after stronger-than-expected US economic news on Thursday pushed T-note yields higher. 

The yen has some carryover support from Tuesday, when Japanese Minister of Agriculture Koizumi said he would 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. 

December gold (GCZ25) on Thursday closed down -39.50 (-1.06%), and December silver (SIZ25) closed down -0.034 (-0.08%).  Precious metal prices settled lower on Thursday and were under pressure from a stronger dollar. Also, higher global government bond yields on Thursday undercut precious metals prices.  In addition, Thursday’s rally in the S&P 500 to a new record high curbed safe-haven demand for precious metals.  Thursday’s better-than-expected US economic news on weekly jobless claims and the Sep Philadelphia Fed business outlook survey was hawkish for Fed policy and weighed on gold prices, but also signals economic strength and is positive for industrial metals demand and silver prices. 

Gold prices also had a negative carryover from Wednesday, when Fed Chair Powell said higher goods prices are feeding through to inflation, and the FOMC expects inflation to continue to build into next year, which may limit how much more the Fed can cut interest rates.

Precious metals have support after the FOMC cut interest rates by -25 bp on Wednesday and signaled -50 bp more of rate cuts by year’s end.  On Tuesday, nearest-futures (U25) gold posted an all-time high of $3,698.60 an ounce, and nearest-futures (U25) silver posted a 14-year high.  Gold prices continued to receive safe-haven support from uncertainty tied to US tariffs and President Trump’s attacks on Fed independence as he 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.  Geopolitical risks and political uncertainty in France and Japan are also 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 on Tuesday, and silver holdings in ETFs rose to a 3-year high on Wednesday.