The dollar index (DXY00) climbed to a 1.75-month high and gained 0.56%, supported by the OECD’s upgraded 2026 U.S. GDP forecast and its lowered inflation projection. Speculation that the Federal Reserve could continue tightening monetary policy also strengthened the dollar after Governor Michael Barr said further policy adjustments are likely to be needed to bring inflation back to target in a timely manner.
Additional support came from U.S. economic data, as the September S&P manufacturing PMI unexpectedly increased 3.1 points to 57.0, marking the fastest pace of expansion in 4.25 years and comfortably ahead of expectations for a decline to 53.7.
U.S. mortgage activity weakened in the week ended September 18. Applications from the MBA fell 1.5%, with the purchase index down 0.8% and the refinancing index down 2.6%. The average 30-year fixed mortgage rate rose 15 basis points to 7.12%, its highest level in 2.25 years, from 6.97% the previous week.
Traders currently assign a 69% probability to a 25-basis-point rate increase at the Federal Reserve’s October 27-28 meeting.
EUR/USD (^EURUSD) fell 0.55% to a seven-week low as dollar strength weighed on the euro. The euro’s losses were limited after the Eurozone’s September manufacturing and composite PMIs exceeded expectations, while hawkish comments from ECB Governing Council member and Bundesbank President Joachim Nagel provided support.
The Eurozone’s September S&P manufacturing PMI was unchanged at 52.7, above expectations of 52.6. The composite PMI unexpectedly rose 1.1 points to 53.1, the fastest expansion in 3.25 years and well above expectations of 51.7.
Nagel said Eurozone inflation remains above 3% and is expected to stay above the ECB’s 2% target for another year, suggesting the central bank may need to raise interest rates to a level that restrains economic growth.
The OECD raised its 2026 Eurozone GDP forecast by 0.2 percentage points to 1.0%, from 0.8% in June. It also increased its inflation forecast by 0.2 points to 3.0%, from 2.8%.
Markets currently assign a 59% probability to a 25-basis-point ECB rate increase at its October 29 policy meeting.
USD/JPY (^USDJPY) rose 0.58% as the yen fell to a 2.5-week low against the dollar. Higher Treasury yields also weighed on the currency, although the OECD’s upgraded 2026 Japan GDP forecast offered some support. Yen volatility may have been amplified by below-normal trading activity, as Japanese markets were closed for the Autumnal Equinox Day holiday.
The OECD raised its 2026 Japan GDP forecast to 0.8% from 0.6% in June.
Markets currently assign an 18% probability to a 25-basis-point Bank of Japan rate increase at its October 30 policy meeting.
December COMEX gold (GCZ26) declined $60.10, or 1.37%, while December COMEX silver (SIZ26) fell $1.420, or 2.13%.
Precious metals were under pressure from the dollar’s rally and hawkish central bank commentary. Nagel said the ECB may need to keep raising interest rates amid persistent inflation, while Barr indicated that additional Fed increases are likely to be needed to contain inflation.
Silver received some support from signs of stronger global industrial metals demand. The OECD raised its 2026 GDP forecasts for the U.S., Eurozone and Japan, while the unexpectedly strong U.S. manufacturing PMI suggests increased industrial demand.
Fund support for precious metals remains constructive. Net long holdings in gold ETFs rose to a 6.5-month high on Monday, while silver ETF holdings reached a 5.75-month high on Tuesday.
Gold is also benefiting from sustained central bank demand. Bullion held in China’s PBOC reserves increased by 650,000 ounces to 76.73 million troy ounces in August—the largest monthly gain in three years and the 22nd consecutive month of increases.
