Dollar Slips as Bond Yields Drop

The dollar index fell by 0.03 percent on Thursday. This decline came after the currency reached a 1.5-month high earlier in the week. A sharp rally in stock markets reduced the need for dollar liquidity. Lower yields on US Treasury notes also weighed on the currency. According to GN markets/fx (en-US), these factors limited the dollar's gains despite strong labor data. Initial jobless claims dropped to 196,000. This figure marked an 8-week low and beat market expectations. The data signaled a resilient US labor market.

The Federal Open Market Committee raised interest rates by 25 basis points on Wednesday. Officials signaled that another rate hike is possible by year-end. Markets currently price in a 55 percent probability of a 25 basis point increase at the next meeting. This meeting is scheduled for October 27 and 28. Housing data showed mixed results. August housing starts fell by 2.6 percent month over month. Building permits decreased by 2.7 percent. Pending home sales rose by 0.3 percent, beating forecasts.

Euro gains follow oil price drop

The euro rose by 0.11 percent against the dollar. The currency recovered from a 1.5-month low. Weaker crude oil prices supported the Eurozone economy. Europe relies heavily on imported energy. This factor helped the euro gain ground. Investors engaged in short covering as the dollar weakened. Eurozone inflation data was revised lower in August. The annual inflation rate dropped to 3.2 percent from 3.3 percent. Core inflation remained unchanged at 2.4 percent. Markets see a 54 percent chance of a 25 basis point ECB hike on October 29.

Yen strengthens ahead of BOJ decision

The yen gained 0.17 percent against the dollar. Lower oil prices supported Japan, which imports over 90 percent of its energy. Falling US Treasury yields also boosted the yen. Market participants expect the Bank of Japan to raise rates by 25 basis points on Friday. The probability of this hike is priced at 100 percent. The government favors a rate increase to support the currency. A stronger yen helps control inflationary pressures. Speculation also surrounds the Government Pension Investment Fund. This fund holds 2.1 trillion dollars in assets. Recent speculation suggests the fund may increase its allocation to Japanese government bonds.

Precious metals rise on lower yields

December COMEX gold closed higher by 12.20 dollars. This represents a 0.28 percent gain. December COMEX silver rose by 1.176 dollars, or 1.81 percent. Silver reached a one-week high. Falling global bond yields made precious metals more attractive. Lower crude oil prices eased inflation concerns. This could lead central banks to adopt easier monetary policies. The Bank of England decided not to raise interest rates on Thursday. This decision increased demand for gold as a store of value. Investors worry the BOE may be behind the curve on inflation.