Dollar Retreats as Stocks Recover

The dollar index (DXY00) on Thursday fell by -0.85%.  The dollar Thursday retreated from a 2-week high and fell sharply after a rebound in stocks sparked long liquidation in the dollar.  The dollar Thursday initially jumped to a 2-week high after the 10-year T-note yield soared to a 14-year high of 4.075% when U.S. Sep consumer prices rose more than expected, bolstering the outlook for the Fed to raise interest rates by 75 bp at the Nov 1-2 FOMC meeting.

Weekly U.S. labor market news was bearish for the dollar after weekly initial unemployment claims rose +9,000 to a 6-week high of 228,000, showing a weaker labor market than expectations of 225,000.

U.S. Sep CPI rose +0.4% m/m and +8.2% y/y, stronger than expectations of +0.2% m/m and +8.1% y/y. Sep CPI ex-food & energy rose +0.6% m/m and +6.6% y/y, stronger than expectations of +0.4% m/m and +6.5% y/y with the +6.6% y/y gain the fastest pace of increase in 40 years.

EUR/USD (^EURUSD) on Thursday rose by +0.77%.  The euro Thursday recovered from a 2-week low and moved moderately higher.  A slump in the dollar Thursday sparked short covering in EUR/USD.  Also, hawkish comments from ECB Governing Council member and Bundesbank President Nagel and ECB Governing Council member Wunsch gave the euro a boost.

ECB Governing Council member and Bundesbank President Nagel said the ECB should enact another "robust" interest rate increase at this month's policy meeting to ensure price expectations don't become unmoored.

ECB Governing Council member Wunsch said the ECB's deposit rate, currently 0.75%, will "most probably" need to exceed 2% and may eventually have to top 3% to get record inflation under control.

USD/JPY (^USDJPY) on Thursday rose by +0.22%.  The yen Thursday tumbled to a 32-year low against the dollar. Central bank divergence undercut the yen after BOJ Governor Kuroda vowed to maintain monetary easing to support Japan’s economy.  The yen recovered from its worst levels after Japan Sep producer prices rose more than expected and when Japanese Finance Minister Suzuki said that Japan would take "bold action" against speculative moves in the currency market.

Japan Sep PPI rose +0.7% m/m and +9.7% y/y, stronger than expectations of +0.3% m/m and +8.9% y/y.

December gold (GCZ22) Thursday closed down -0.50 (-0.03%), and December silver (SIZ22) closed down -0.020 (-0.11%).  Gold and silver Thursday fell to 2-week lows but closed only slightly lower.  A jump in T-note yields weighed on gold prices after the 10-year T-note yield Thursday rose to a 14-year high.  In addition, the outlook for the Fed to boost rates by 75 bp at its November FOMC meeting is bearish for metals prices after U.S. Sep CPI rose more than expected.   Precious metals recovered nearly all their losses after the dollar index retreated from a 2-week high and moved sharply lower.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low Wednesday. 

• Stocks Rebound Off Lows Despite Hot U.S. Consumer Prices
• Dollar Modestly Higher on Strong U.S. Producer Prices and Weak Yen
• Stocks Post Modest Gains in Choppy Trade
• Dollar Modestly Higher on Weak Stocks and Stronger T-Note Yields