Dollar Hits 7-Week High as Yen Weakens and Yields Rise

The dollar index DXY reached a 7-week high, registering a gain of 0.24%. This strength coincided with the Japanese yen falling to a 2-week low against the dollar. The yen's decline persisted despite the Bank of Japan raising its overnight call rate by 25 basis points to 1.25%. Two Bank of Japan members dissented from the decision, signaling opposition to further tightening. This internal disagreement, combined with softer inflation data, weakened the yen. Weakness in the yen provides support for the dollar as a global reserve currency.

US macroeconomic data released on Wednesday showed a decline in industrial activity. August manufacturing production fell by 0.3% month-over-month. This figure was below the expected increase of 0.3% and marked the largest drop in 10 months. August leading indicators also declined by 0.1%, missing expectations of a 0.1% rise. This was the first monthly decrease in 5 months. Despite these softer data points, the dollar maintained its upward momentum. The market remains focused on the Federal Reserve's recent 25 basis point rate hike and its signal for another increase by year-end.

Inflation Expectations Rise with Oil Prices

WTI crude oil prices jumped by more than 1% today. Higher oil prices boost inflation expectations, which influences central bank policy decisions. The Federal Reserve may maintain a tighter monetary stance to control price growth. This policy environment is generally bullish for the dollar. Conversely, rising inflation and higher bond yields weigh on precious metals. December COMEX gold futures fell by 10.20 dollars, a drop of 0.23%. The strength of the dollar also acted as a headwind for gold prices.

Silver Rises on Industrial Demand Signals

Silver prices moved in the opposite direction of gold. December COMEX silver futures rose by 0.615 dollars, a gain of 0.93%. This push brought silver to a 1-week high. The rally reflects signs of stronger industrial demand in Europe. European Central Bank President Christine Lagarde noted that Eurozone economic growth is more promising than previously thought. This positive outlook supports industrial metals like silver. Fund flows also contributed to the price increase, with long holdings in silver ETFs reaching a 5.5-month high.

Central Banks Continue Buying Gold

Demand from central banks remains a key support for gold prices. China's People's Bank of China increased its gold reserves by 650,000 ounces in August. Total holdings rose to 76.73 million troy ounces. This was the largest single-month increase in three years. It marks the 22nd consecutive month of reserve accumulation by the PBOC. Long holdings in gold ETFs also climbed to a 6.5-month high. These institutional flows provide a floor for prices despite the stronger dollar and higher yields. The source of this market data is GN auto markets/commodities: gold prices.