The dollar index (DXY00) fell by -0.32% on Friday. The dollar was under pressure Friday after WTI crude oil prices fell more than -2%, easing inflation expectations and weighing on Fed policy. Also, strength in stocks on Friday curbed liquidity demand for the dollar.

Dollar losses were limited on better-than-expected US economic news Friday, including Aug capital goods new orders (nondefense, ex-aircraft and parts) and the University of Michigan US Sep consumer sentiment index. Also, hawkish comments on Friday from New York Fed President John Williams supported the dollar when he said the Fed needs to return inflation to target.

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US Aug capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +1.6% m/m, stronger than expectations of +0.6% m/m. July was also revised upward to +0.6% m/m from the previously reported unchanged m/m.

The University of Michigan US Sep consumer sentiment index was unexpectedly revised upward by +0.3 to 48.1, stronger than expectations of a downward revision to 47.5.

New York Fed President John Williams said the Fed can't ignore supply shocks if they have a persistent effect on prices and it needs to return inflation to target.

Markets are pricing in a 64% chance of a +25 bp Fed rate hike at the next FOMC meeting on October 27-28.

EUR/USD (^EURUSD) rose by +0.16% on Friday. Dollar weakness on Friday supported euro gains. Also, Friday’s -2% decline in crude oil prices is positive for the Eurozone economy and the euro, as Europe imports most of its energy. Euro gains were limited on Friday after the German Oct GfK consumer confidence index fell more than expected to a 5-month low.

The German Oct GfK consumer confidence index fell by -3.8 to a 5-month low of -30.6, weaker than expectations of -27.2.

The markets are discounting a 42% chance of a +25 bp ECB rate hike at the ECB’s next policy meeting on October 29.

USD/JPY (^USDJPY) fell by -1.07% on Friday. The yen rallied sharply against the dollar on Friday as short covering in the yen emerged after Japanese Prime Minister Sanae Takaichi told President Trump that the undervalued yen is problematic. The yen added to its gains after Japanese Finance Minister Satsuki Katayama said she would continue to coordinate with Treasury Secretary Bessent, signaling the US and Japan could again engage in coordinated intervention in currency markets to support the yen. In addition, Friday’s -2% fall in crude oil prices was supportive for the Japanese economy and the yen as Japan imports more than 90% of its energy. Finally, the yen found support on Friday after the 10-year Japan JGB bond yield rose to a 30-year high of 3.125%, which strengthened the yen’s interest rate differentials.

The yen strengthened Friday after Japanese Finance Minister Satsuki Katayama said President Trump shared concerns over the weak yen and that she would continue to coordinate with Treasury Secretary Bessent, reinforcing the signal that both governments are paying attention to the yen's depreciation.

Markets are pricing in a 31% chance of a +25 bp BOJ rate hike at the next policy meeting on October 30.

December COMEX gold (GCZ26) closed up +23.20 (+0.54%) on Friday, and December COMEX silver (SIZ26) closed up +0.799 (+1.25%).

Precious metals prices settled higher on Friday amid a weaker dollar. Gains in precious metals accelerated on Friday after WTI crude oil fell more than -2%, easing inflation expectations and potentially prompting the world’s central banks to loosen monetary policy, a bullish factor for precious metals.

Precious metals gains were limited by hawkish comments on Friday from New York Fed President John Williams, who said the Fed needs to return inflation to target. Also, stock strength on Friday reduced safe-haven demand for precious metals.

Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 6.5-month high on Thursday. Long holdings in silver ETFs rose to a 5.75-month high on Tuesday.

Strong central bank demand for gold is supporting gold prices, after news last Monday that bullion held in China's PBOC reserves rose by +650,000 ounces to 76.73 million troy ounces in August, the largest increase in three years and the twenty-second consecutive month the PBOC boosted its gold reserves.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.