The dollar index (DXY00) is up by +0.13% today. The dollar is moving higher today amid weakness in stocks, which is boosting liquidity demand for the currency. Also, hawkish comments today from New York Fed President John Williams boosted the dollar, as he said inflation is still quite high. In addition, higher crude oil prices today have pushed up inflation expectations and could persuade the Fed to keep monetary policy tight, a supportive factor for the dollar. The dollar fell from its best level after the US May trade deficit widened to a 14-month high.
The US May trade deficit widened to -$77.6 billion, the largest deficit in 14 months and a negative factor for Q2 GDP.
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New York Fed President John Williams said inflation remains quite high and that he sees steady economic growth and labor market stability.
The swaps markets are discounting the odds at 25% for a +25 bp rate hike at the next FOMC meeting on July 28-29.
EUR/USD (^EURUSD) today is down by -0.10%. The euro is moving lower today amid a stronger dollar. Losses in the euro are limited after German May industrial production rose more than expected by the most in 8 months. Also, today’s jump in the 10-year German Bund yield to a 2-week high strengthened the euro’s interest rate differentials.
German May industrial production rose +0.9% m/m, stronger than expectations of +0.1% m/m and the largest increase in 8 months.
The markets are discounting a +4% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) today is down by -0.09%. The yen is moving higher today on some positive Japanese economic news after the Japan May leading index CI rose to a 4.75-year high and May household spending fell less than expected. Also, stronger Japanese government bond yields have strengthened the yen’s interest rate differentials after the 10-year JGB yield climbed to a 29-year high of 2.861% today.
Gains in the yen are limited today after Japan’s May real cash earnings rose less than expected, a dovish factor for BOJ policy. Also, comments from Japan’s Growth Strategy Minister Minoru Kiuchi were supportive of the yen when he said, “There’s absolutely no truth” to reports suggesting the government encouraged low interest rates as part of its fiscal expansion policy.
The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen reached that level.
The Japan May leading index CI rose +0.7 to a 4.75-year high of 116.8, close to expectations of 116.9.
Japan May household spending fell -0.4% y/y, a smaller decline than expectations of -2.3% y/y.
Japan May real cash earnings rose +1.4% y/y, weaker than expectations of +1.7% y/y.
The markets are discounting a +1% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.
August COMEX gold (GCQ26) today is down -3.40 (-0.08%), and September COMEX silver (SIU26) is down -0.675 (-1.08%).
Gold and silver prices are under pressure today. Weighing on precious metals is a stronger dollar. Also, today’s +2% jump in crude oil prices raises inflation expectations and could prompt central banks worldwide to keep their monetary policies restrictive, a bearish factor for precious metals. In addition, hawkish comments today from New York Fed President John Williams were negative for precious metals when he said inflation is still quite high.
Losses in precious metals are limited today amid an increase in safe-haven demand from weakness in stocks and renewed tensions in the Middle East following attacks on shipping in and around the Strait of Hormuz.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low last Friday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.5-month low on Monday from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth 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.
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