Dollar Slides as US Manufacturing Data Disappoints
The dollar index retreated from a seven-week high after US economic indicators missed forecasts. This movement reversed early gains driven by higher bond yields.
The dollar index (DXY00) fell 0.03% on Friday. It dropped from a seven-week high. US August manufacturing production declined 0.3% month-over-month. This was a miss against expectations of a 0.3% rise. It marked the largest drop in ten months.
US leading indicators also fell. They dropped 0.1% month-over-month. Analysts expected a 0.1% increase. This was the first decline in five months. The weak data reduced expectations for immediate further rate hikes by the Federal Reserve.
Euro Strengthens on German Price Data
The euro recovered from a seven-week low. The EUR/USD pair finished up 0.10%. German August producer prices rose 1.1% month-over-month. This beat the expected 0.6% increase. The year-over-year rise of 4.6% was the highest in three and a quarter years.
ECB President Christine Lagarde noted promising economic growth. She stated that second-round inflation effects are not yet visible. Markets now price a 62% chance of a 25 basis point hike. This decision is expected at the October 29 meeting. The euro benefited from short covering as the dollar weakened.
Yen Falls Despite Bank of Japan Hike
The yen weakened against the dollar. USD/JPY rose 0.41% on Friday. The yen hit a two-week low. This occurred despite the Bank of Japan raising rates. The BOJ increased the overnight call rate by 25 basis points to 1.25%. The vote was split 7-2, signaling internal dissent.
Japan's August national CPI rose 1.9% year-over-year. This matched the previous month but missed the 2.0% forecast. The soft inflation data supported the yen's later recovery. Crude oil prices fell 1%, benefiting Japan as a major energy importer. Markets see an 18% chance of a further BOJ hike on October 30.
Precious Metals Rise on Soft Data
Gold and silver prices increased. December COMEX gold closed up 25.20, or 0.57%. It reached a one-week high. Silver rose 1.054, or 1.59%, to its own one-week peak. The rally followed the dollar's decline from its high level.
Lower crude oil prices eased inflation concerns. This supports the case for central banks to ease policy. Such moves are bullish for non-yielding assets like gold. According to GN markets/fx (en-US), short covering in metals contributed to the price gains. The sector benefited from the shift in monetary policy expectations.
