Dollar Index Hits 11-Week High Amid Fed Rate Speculation and Election Concerns
The U.S. dollar index reached an 11-week high on Wednesday, October 16, rising 0.29% to 103.52 as investors dismissed the possibility of a sharp rate cut by the Federal Reserve at its next policy meeting and considered the implications of a potential Donald Trump election victory. The benchmark 10-year U.S. bond yield closed at 4.018%, while the two-year yield, which is more sensitive to monetary policy, closed at 3.95%.
Spot gold approached record highs, reaching $2,685.41 per ounce during the day and closing up 0.43% at $2,673.70 per ounce. Safe-haven demand, driven by expectations of interest rate cuts by major central banks and ongoing geopolitical tensions, was a key factor behind the rise. Spot silver also gained, ending up 0.62% at $31.67 per ounce.
Oil prices remained near two-week lows, pressured by expectations of slowing oil demand growth. WTI crude ended down 0.49% at $70.61 per barrel, while Brent crude closed down 0.31% at $74.41 per barrel.
Recent market data and developments played a significant role in shaping the day's movements. OPEC recently cut its oil demand growth forecast for this year and next, which has weighed on international oil prices. Meanwhile, tensions in the Middle East threaten to escalate, with speculation that Israel may retaliate against Iran before November 5.
UBS warned of increased uncertainty and volatility in the gold market as the U.S. election approaches. Statements by Federal Reserve officials and evolving election dynamics have pushed investors toward risk aversion, contributing to the dollar's strength against a basket of currencies.
The dollar index, which measures the dollar's value against six major currencies, rose 0.32% to close at 103.589 by the end of the trading day. Federal Reserve officials, including Raphael Bostic of the Atlanta Fed and Mary Daly of the San Francisco Fed, indicated that while another rate cut is expected this year, it is likely to be limited to 25 basis points. This aligns with market expectations for a gradual reduction in rates through the remainder of the year.
UBS Group foreign exchange strategist Vassili Serebriakov highlighted that expectations for Federal Reserve policy and election prospects have boosted the dollar. Serebriakov noted that markets are hesitant to sell the dollar given increased support for Trump, alongside potential tariff risks.
Elsewhere, data from the UK's Office for National Statistics showed that the consumer price index remained flat in September compared to the previous year, falling short of market expectations and underscoring ongoing economic uncertainty.
