The dollar index (DXY00) on Wednesday fell by -0.28%. The dollar moved lower on Wednesday after dovish comments from Boston Fed President Susan Collins reinforced expectations that the Fed will cut interest rates at the October 28-29 FOMC meeting, when she stated that it is prudent for the Fed to cut interest rates further this year.Also, the strength in stocks on Wednesday reduced some liquidity demand for the dollar. The dollar recovered from its worst level today after the US Oct Empire manufacturing survey of general business conditions rose more than expected and the Fed’s Beige Book stated that input costs increased at a faster pace, a hawkish factor for Fed policy.
The ongoing shutdown of the US government is bearish for the dollar. The longer the shutdown is maintained, the more likely the US economy will suffer, a negative factor for the dollar.
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The US Oct Empire manufacturing survey of general business conditions index rose +19.4 to 10.7, stronger than expectations of -1.8.
The Fed Beige Book based on information collected by the Fed’s 12 regional banks through October 6 stated that US economic activity was little changed in recent weeks and employment levels held stable. However, overall consumer spending edged lower, and prices continued to rise, with several districts reporting that input costs increased at a faster pace.
Boston Fed President Susan Collins said, “With inflation risks somewhat more contained, but greater risks to employment, it seems prudent to normalize policy a bit further this year to support the labor market.”
The markets are pricing in a 98% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
EUR/USD (^EURUSD) on Wednesday rose by +0.24%. The euro moved higher on Wednesday due to a weak dollar.Also, hawkish comments on Wednesday from Governing Council members Dolenc, Makhlouf, and Nagel gave the euro a boost when they signaled that current interest rates are appropriate. Gains in the euro accelerated on Wednesday, driven by optimism that budget concessions made by French Prime Minister Lecornu will enable him to pass a budget and avoid a no-confidence vote on Thursday, thereby restoring some political stability in France. Gains in the euro were limited on Wednesday after the Eurozone’s August industrial production posted its largest decline in four months.
