Dollar Surges to 1.75-Month High on Strong Economy and Hawkish Comments
The US dollar index DXY rose to a 1.75-month high on Thursday, finishing up by +0.14%. The dollar was bolstered by higher T-note yields, which reached a 19-year high of 5.18%, strengthening the dollar's interest rate differentials.
Additionally, signs of a strong US economy were evident in Thursday's data releases. Weekly jobless claims fell to a 2-month low of 197,000, while new home sales rose +6.4% month-over-month to an 8-month high of 684,000.
Hawkish comments from Fed officials also supported the dollar on Thursday. New York Fed President John Williams stated that the Fed has 'a lot of work to do' to contain inflation, while Philadelphia Fed President Anna Paulson suggested that some further tightening of monetary policy may be warranted to ensure inflation returns to the 2% goal.
As a result, markets are pricing in a 69% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28. The dollar's rally weighed on other currencies, with the yen falling to a 3-week low against the dollar due to higher T-note yields and the subsequent increase in crude oil prices.
Precious metals also suffered losses on Thursday, with gold and silver posting 1-week lows as the stronger dollar index and higher global bond yields undercut prices. However, recent fund support for precious metals remains bullish for prices, with long holdings in gold ETFs climbing to a 6.5-month high.