The U.S. dollar index is -0.44% this week, a modest decline compared to other market sectors given the Fed’s 50bps cut this week. But looking at the dollar’s performance against individual currencies tells a different (and more volatile) story. The primary dollar move against the G10 basket is a 2.15% gain vs. JPY. The surge in treasury yields has increased the distance between U.S. and Japanese rates, forcing traders to abandon short USDJPY positions. USDJPY traded as low as 139.56 on Monday but has since climbed to 144.20. Next daily resistance is at 145.75.
The dollar’s biggest weekly declines are -1.31% vs. AUD and -1.21% vs. GBP.
Gold has had a remarkable week, recording two record high daily closes (three likely after today), and three all-time intraday highs. Gold is +1.11% today at $2615.37/oz, and +26.80% YTD after seven consecutive monthly gains.
The S&P 500 Index reached an all-time high yesterday, leapfrogging resistance at 5700 in a decisive move sparked by investor optimism after the Fed cut borrowing rates this week. The S&P has surged 36.24% since October of last year in a largely unchallenged up-trend. The extended rally in stocks is creating some concern over a potential bubble.
U.S. Treasury yields are set to close the week higher with traders giving more weight to the Fed’s hawkish rate policy comments than the actual half percent cut in the overnight rate. The FOMC made clear that it remained attentive to the cooling (but still strong) labor market, and its expectation for inflation to continue its downward path to the 2% long-term goal.
The FOMC’s next rate policy decision is on November 7th (only two days following the U.S. General Election). Implied probabilities show 60% expect a 25bps cut and 40% expect another 50bps cut.
Next week’s U.S. economic calendar includes Consumer Confidence on Tuesday, New Home Sales on Wednesday, and quarterly GDP, Durable Goods, and weekly Jobless Claims on Thursday.
