[Dollar Gains Momentum on Strengthening Yield Curve]
The dollar index (DXY00) rose by +0.09% on Wednesday. The dollar shook off early losses and moved higher on stronger T‑note yields, while broader signs of economic resilience reinforced its position. U.S. economic data delivered added support, particularly after Q2 GDP was revised upward, the ninth‑month payroll gain surpassed expectations, and the Chicago POEMI posted better results than projected. August personal spending rose the most in five months (+0.9% month‑over‑month, on target) and personal income edged up modestly, reflecting continued consumer confidence. Core PCE prices eased slightly but remained below consensus, and September earnings revisions bounced back toward optimism. The fast‑track expansion was further marked by a rebound in German activity—with Q2 core CPI cooling and manufacturing slipping—a development that buoyed risk sentiment across major currencies.
The initial dip was tempered by these developments, though earlier weaker‑than‑expected inflation readings on August core PCE and second‑quarter CPI dampened near‑term Fed hike hopes, pulling the October meeting probability down to 37% from 52% the day prior.
The U.S. ninth‑month payroll surge jumped +90,000, beating forecasts of +75,000.
August personal spending climbed +0.9% month‑over‑month, matching expectations and representing the strongest monthly jump in five months. Personal income also modestly rose +0.2% month‑over‑month, slightly trailing guidance.
The eighth‑month core PCE price index climbed +0.2% month‑over‑month and +3.0% year‑over‑year but fell short of forward expectations, which called for +0.3% month‑over‑month and +3.3% year‑over‑year.
Q2 GDP was revised positively to +2.2% quarterly (annualized) versus the previous estimate of flat, driven largely by a stronger second‑month household consumption figure that moved up to +3.8% from the earlier reading of +3.4%.
The U.S. ninth‑month PoEMI expanded to +11.7, reaching 58.8—exceeding outlooks of +51.0—and reflected the quickest pace of broad-based growth in four months.
Markets now calculate a 37% likelihood of a 25‑bp rise at the upcoming October 27‑28 FOMC meeting.
EUR/USD slipped -0.11% on Wednesday, as the euro unwound early gains following the dollar’s reversal and intensified liquidity seeking in Eurozone assets.
The euro began Wednesday climbing, buoyed by indications of accelerating inflation in Germany, which provides a favorable backdrop for ECB easing and supports the currency after a sharper pickup in September CPI.
Additionally, a 1% rise in crude oil costs heightened inflation concerns, potential catalysts that could spur tighter monetary stances from both the Fed and the European Central Bank.
Germany posted a solid +12,000 increase in ninth‑month unemployment, suggesting a leaner labor environment against the earlier expectation of +500.
Retail sales in Germany rose +1.3% month‑over‑month, marking the largest quarter‑to‑quarter gain in fourteen months while narrowly missing a bullish forecast of +1.5%.
The eighth‑month harmonic CPI in Germany advanced +0.6% month‑over‑month and +3.3% year‑over‑year, moving above both recent estimates of +0.5% and +3.2%.
The market adjusted down 26% for a possible 25‑bp European Central Bank rate increase at their tenth policy meeting on October 29.
USD/JPY gained modestly by +0.04% on Wednesday as the yen dipped from a weekly high against the dollar and faced headwinds from elevated T‑note yields pushing the benchmark to a 19‑year high of 5.30%.
Crude oil gains also weighed on the yen, and weaker‑than‑expected Japanese economic data for August industrial output and retail sales compounded pressure on the currency.
The yen showed a brief rally after the American softening on inflation metrics, but retained support from the anticipation of a coordinated dollar‑yen intervention between Tokyo and Washington, citing Atsushi Mimura’s assessment of imminent monetary tightening coordinated with U.S. officials.
Japanese manufacturing contracted -1.7% month‑over‑month, the sharpest contraction in six months, while retail sales declined another -1.2%.
ECB participants now assign a 21% probability to a single‑digit rate bump at their turn of 30 October.
December COMEX gold closed up +7.00 (+0.17%), while December COMEX silver closed down -0.587 (-0.96%).
Precious metals displayed mixed performance on Wednesday; silver slid to a 1.75‑month low as the dollar’s recovery dampened precious metal demand.
Conversely, gold edged down from its peak, and silver slipped into negative territory as the robust inflation signal revived central bank caution and global commodity prices rose.
Despite these pressures, extended holding levels sustained bullish momentum for metals: gold ETF exposure hit a four‑year high on Tuesday, and silver ETF allocations reached a six‑month peak on Wednesday.
Continued central‑bank purchasing power underpinned gold, especially given recent moves such as the PBOC increasing its treasure inventory by over 650,000 ounces to 76.73 million troy ounces—an unprecedented three‑year jump and the longest streak of monthly reserve increases spanning two decades.
