Positive economic reports supported the dollar, including a rise in the September Chicago Fed National Activity index to 0.07 from a revised -0.08 in August, surpassing expectations of a decline to -0.10. Additionally, the Dallas Fed’s October manufacturing index increased to 13.4 from 9.8, defying forecasts of a drop to 8.8.
The dollar also strengthened against Latin American currencies, particularly the Brazilian real, which plummeted -10% following President Luiz Inacio Lula da Silva’s unexpected victory in the Brazilian presidential election. Safe-haven demand for the dollar persisted due to ongoing Middle East tensions, including Houthi attacks on Saudi Arabia and speculation about potential US military actions against Iran or the Houthis following key elections in Israel and the US.
Markets currently assign a 9% chance of a +25 basis point Fed rate hike at this week’s FOMC meeting, but a 90% probability of such a hike at the December 8-9 meeting. Meanwhile, the euro gained +0.39% against the dollar, while the yen weakened due to reduced repatriation demand as global stock markets rebounded from last week’s declines.
December COMEX gold rose +24.6 (+0.61%), and December COMEX silver climbed +0.046 (+0.09%), recovering from last week’s -4.1% sell-off in gold. The sell-off was driven by stock market volatility and liquidation of precious metals positions. Gold found support from the decline in the 10-year Treasury yield but faced pressure from a slightly stronger dollar. Safe-haven demand for gold persisted amid Middle East tensions, though prices were previously undercut by Russia’s central bank reducing its gold reserves to 72.8 million ounces as of October 1.