Dollar Falls and Gold Pushes to a New Record High on Fed Easing Prospects

Core Viewpoint - The dollar index is experiencing a decline due to expectations of interest rate cuts by the Federal Reserve, alongside mixed economic indicators from the US and Europe [1][5][6]. Economic Indicators - US retail sales for August increased by 0.6% month-over-month, surpassing expectations of 0.2% [3]. - Retail sales excluding automobiles rose by 0.7% month-over-month, exceeding the forecast of 0.4% [3]. - The US manufacturing production unexpectedly rose by 0.2% month-over-month, contrary to expectations of a 0.2% decline [3]. - The NAHB housing market index for September remained unchanged at a 2.75-year low of 32, which was below the expected increase to 33 [4]. Federal Reserve Expectations - The market is pricing in a 100% probability of a 25 basis point rate cut at the upcoming FOMC meeting, with an 84% chance of a second 25 basis point cut at the next meeting on October 28-29 [5]. - Overall, the market anticipates a total reduction of 69 basis points in the federal funds rate by year-end, bringing it down to 3.64% from the current 4.33% [5]. Currency Movements - The euro is appreciating against the dollar, up by 0.69% and reaching a 4-year high, driven by dollar weakness and central bank divergence [6]. - The European Central Bank (ECB) is perceived to be nearing the end of its rate-cutting cycle, contrasting with the Fed's expected rate cuts [6]. Eurozone Economic News - Eurozone Q2 labor costs increased from Q1, indicating rising costs in the region [7]. - The German ZEW survey for September showed unexpected improvement in economic growth expectations [7]. - However, Eurozone industrial production for July rose less than anticipated, indicating mixed economic performance [7].