USD falls back and precious metals rally on Dovish Fed talk

Summary:

Fed’s Kaplan & Clarida deliver dovish messages; Industrial production misses
USD falling back lower; EURUSD >1.14
Gold and Silver attempt to rally higher

The economic calendar this afternoon is pretty thin on the ground heading into the weekend with US industrial production the only real release of note. The latest figures here showed a smaller than expected rise of 0.1% M/M compared to an expected 0.2%.

Industrial production growth slowed down once more this month, with the metric not far off being flat. Source: Bloomberg

There’s been a sizable pullback in the US dollar in recent trade as precious metals and bonds have spike higher in what looks like a broad dovish reaction to some Fed speak. Comments from members Kaplan and Clarida both hit the wires in the last hour and these remarks preceded these moves in the markets. Selected remarks are as follows:

Kaplan:

US needs to moderate growth of government debt
Inflation pressures are building, not running away
Global growth will be a little bit of a headwind, may spill to US

Clarida:

Don’t expect a big pick in inflation next year
There is still some room to run in the labour market
Fed has to factor global slowing in global outlook
Short-term rates close to neutral range now

Overall the feeling here is a little more dovish than expected with Clarida in particular saying that short-term rates are close to neutral. The remarks by both members that global growth is slowing and that this should factor on Fed decision making can also be seen as dovish. While these comments may not seem strongly dovish they are a bit surprisingly so and given the market reaction it appears to have caught some off guard. There’s been a clear fall lower in the greenback following this with the EURUSD moving up to its highest level of the week and reclaiming the 1.14 handle.

The EURUSD has rallied around 70 pips in recent trade with the market moving up to its highest level of the week and above the 1.14 handle once more. Source: xStation

We mentioned yesterday that Gold could be well placed to rally and this news appears to have provided a catalyst. The market is up by $10 in the last hour and a half and has made a clean break above the 1216-1218 region. Price is now at the next swing level around 1225 but the longer term picture is looking more positive for this market and it could well retest the recent highs around 1236 if it can get above this next hurdle.

Gold has made a potentially key break higher above 1216-1218 and if it can move through 1225 then 1236 is the next level to look for. Source: xStation

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