The dollar index (DXY00) on Friday fell by -0.38%. The dollar was under pressure Friday from strength in stocks, which reduces liquidity demand for the dollar. Also, the strength of the euro on Friday weighed on the dollar after hawkish comments from ECB Executive Board member Schnabel boosted the euro. Friday’s reports on US Apr capital goods new orders nondefense ex-aircraft and parts and the University of Michigan US May consumer sentiment were better than expected and supportive for the dollar.
US Apr capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.3% m/m, stronger than expectations of +0.1% m/m.
The University of Michigan US May consumer sentiment index was revised upward to 69.1 from the previously reported 67.4, stronger than expectations of 67.7
The University of Michigan US May 1-year inflation expectations were revised down to 3.3% from the previously reported 3.5%, weaker than expectations of 3.4%. Also, May 5-10-year inflation expectations were revised downward to 3.0% from the previously reported 3.1%.
Fed Governor Waller said, "The US is on an unsustainable fiscal path. If the growth in the supply of US Treasuries begins to outstrip demand, then this will mean lower prices and higher yields, which will put pressure on the neutral rate."
The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 12% for the following meeting on July 30-31.
EUR/USD (^EURUSD) on Friday rose by +0.31%. The euro Friday posted moderate gains due to weakness in the dollar. Also, hawkish comments Friday from ECB Executive Board member Schnabel boosted the euro when she said the ECB shouldn't rapidly lower borrowing costs.
ECB Governing Council member and Bundesbank President Nagel said he's confident that wage growth will slow in coming months and the likelihood of a June rate cut by the ECB is "winning traction."
ECB Executive Board member Schnabel said the ECB shouldn't lower borrowing costs too rapidly as some elements of inflation "are proving persistent, especially domestic inflation and services in particular."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 88% for its next meeting on June 6.
USD/JPY (^USDJPY) on Friday rose +0.02%. The yen on Friday finished slightly weaker but remained above Thursday’s 3-week low against the dollar. Friday’s decline in T-note yields limited losses in the yen. Also, Friday’s economic news showed Japan’s Apr national CPI remained above 2%, a hawkish factor for BOJ policy.
Japan's Apr national CPI eased to +2.5% y/y from +2.7% y/y in March, stronger than expectations of +2.4% y/y. Apr national CPI ex-fresh food and energy eased to +2.4% y/y from +2.9% y/y in March, right on expectations and the slowest pace of increase in 1-1/2 years.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 24% for the June 14 meeting.
June gold (GCM4) Friday closed down -2.7 (-0.12%), and July silver (SIN24) closed up +0.044 (+0.14%). Precious metals prices on Friday settled mixed. Friday’s decline in the dollar was bullish for metals. Also, lower global bond yields on Friday were bullish for precious metals. Silver garnered support from Friday’s better-than-expected report on US Apr capital goods new orders nondefense ex-aircraft and parts, a positive factor for industrial metals demand.
Strength in stocks Friday curbed safe-haven demand for precious metals. Also, comments Friday from ECB Executive Board member Schnabel weighed on gold when she said the ECB shouldn't lower borrowing costs too rapidly.
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.
