The US dollar showed modest gains on Friday, rising by 0.07% as measured by the dollar index (DXY). This upward movement was driven by higher Treasury note yields, which strengthened the dollar’s interest rate advantage. However, the dollar’s gains were capped by weaker-than-expected US consumer sentiment and a stronger Chinese yuan, which hit a four-year high against the dollar.
The University of Michigan’s consumer sentiment index for October fell to a five-month low of 46.3, surpassing expectations of 47.6. Despite this, inflation expectations rose, with the one-year forecast reaching a five-month high of 4.7% and the five-to-ten-year forecast hitting 3.5%. Markets currently assign a 19% probability of a 25 basis point rate hike by the Federal Reserve at its next meeting on October 27-28.
In other currency movements, the euro weakened against the dollar, falling by 0.08%, as Italy’s industrial production for August dropped by 1.3%, the largest decline in a year. Meanwhile, the yen faced pressure from a stronger dollar and higher Treasury yields, though losses were limited by positive Japanese economic data. The yen’s interest-rate differentials narrowed as Japan’s 10-year JGB yield fell to a three-week low of 3.009%. Markets see only a 9% chance of a rate hike by the Bank of Japan at its next meeting on October 30.
Precious metals ended the day higher, with December COMEX gold rising by 1.43% and December COMEX silver climbing by 2.73%. Demand from investors and central banks, particularly the People’s Bank of China, which boosted its gold reserves by 740,000 ounces in September, supported these gains. However, a stronger dollar and higher Treasury yields weighed on precious metals, along with reduced safe-haven demand due to stronger stock markets.