The dollar index (DXY00) today is down by -0.51% and fell to a 3-3/4 month low. The dollar is under pressure after US presidential candidate Trump said the recent strength of the dollar had hurt American competitiveness and that the weakness of the yen and yuan was a trading advantage for Japan and China. His comments bolstered speculation he may adopt policies to reduce the dollar's value if he becomes president. The dollar maintained moderate losses despite stronger-than-expected reports on US Jun housing starts and Jan manufacturing production.
US Jun housing starts rose +3.0% m/m to 1.353 million, stronger than expectations of 1.300 million. Jun building permits, a proxy for future construction, rose +3.4% m/m to 1.446 million, stronger than expectations of 1.400 million.
US Jun manufacturing production rose +0.4% m/m, stronger than expectations of +0.1% m/m.
Fed Governor Waller said the Fed is getting "closer" to cutting rates, but he'd like to see a "bit more evidence" inflation is on a sustained downward path.
New York Fed President Williams said current Fed policy is appropriate until we see "more data." He added that US inflation readings from the last three months are "getting us closer to a disinflationary trend that we're looking for, and I would like to see more data to gain further confidence inflation is moving sustainably to our 2% goal."
The markets are discounting the chances for a -25 bp rate cut at 5% for the July 30-31 FOMC meeting and 96% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) today rose to a 4-month high and is up by +0.31%. Today’s slump in the dollar is supportive of the euro. Also, short covering boosts the euro ahead of Thursday’s ECB meeting, where the ECB is expected to keep monetary policy unchanged.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 78% for the September 12 meeting.
USD/JPY (^USDJPY) today is down by -1.20%. The yen jumped to a 5-week high against the dollar today. Short covering emerged in the yen today, based on comments from US presidential candidate Trump, who said that the weakness of the yen was a trading advantage for Japan. Weakness in stocks today has also boosted some safe-haven demand for the yen. Gains in the yen accelerated today after Kono Taro, a prominent minister running Japan’s digital agency, called on the BOJ to raise interest rates to boost the yen's value and bring down energy and food costs.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 46% for the July 31 meeting and 39% for the September 20 meeting.
August gold (GCQ24) today is up +13.90 (+0.56%), and September silver (SIU24) is down -0.343 (-1.09%). Precious metals prices today are mixed, with Aug gold posting a contract high and nearest-futures (N24) posting a new record high. Today’s slump in the dollar to a 3-3/4 month low is bullish for metals. Gold is also climbing on increased demand as an inflation hedge after the chances of former President Trump winning the election in November increased, which could boost inflation if he pursues new tax cuts and stimulative fiscal policies. Fund buying of gold also supports prices after long gold holdings in ETFs rose to a 3-1/4 month high Tuesday. Silver garnered some support from today’s stronger-than-expected US reports on Jun housing starts and Jun manufacturing production.
Higher global bond yields today are bearish for precious metals. Also, hawkish comments from New York Fed President Williams were negative for precious metals when he said current Fed policy is appropriate until we see "more data." A bearish factor for silver prices was some negative carryover from today’s slide in copper prices to a 2-week low.
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.
