The dollar index (DXY00) Tuesday fell by -0.17%. The dollar on Tuesday moved lower, pressured by a decline in T-note yields. The dollar extended its losses Tuesday based on dovish comments from Fed Chair Powell, who said prices now show signs of resuming their disinflation trend. Losses in the dollar were limited after the US May Jolt job openings unexpectedly increased, a sign of strength in the labor market that is hawkish for Fed policy. Also, weakness in the yen supported the dollar after the yen tumbled to a new 37-year low against the dollar Tuesday.
The US May JOLTS job openings unexpectedly rose +221,000 to 8.140 million, showing a stronger labor market than expectations of a decline to 7.946 million.
Fed Chair Powell said prices now show signs of resuming their disinflation trend, and the Fed can "take its time" with interest rate cuts with a strong economy and a job market.
The markets are discounting the chances for a -25 bp rate cut at 9% for the July 30-31 FOMC meeting and 66% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) on Tuesday rose by +0.03%. The euro on Tuesday posted modest gains on dollar weakness along with comments from ECB Governing Council member Simkus who said the ECB wasn't in a rush to lower borrowing costs. Also, Tuesday’s report on Eurozone Jun CPI showed core prices remain sticky, a hawkish factor for ECB policy. Gains in the euro were limited as political uncertainty in France remains high ahead of the second round of parliamentary elections this Sunday.
The Eurozone Jun CPI eased to +2.5% y/y from +2.6% y/y in May, right on expectations. However, Jun core CPI rose +2.9% y/y, unchanged from May and stronger than expectations of a decline to +2.8% y/y.
ECB Governing Council member Simkus said core inflation is the "most important" indicator that will sway the ECB into action and that the ECB isn't in a rush to lower borrowing costs and is looking to September and the months beyond for more potential interest rate cuts.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 7% for the July 18 meeting and 65% for the September 12 meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.02%. The yen on Tuesday dropped to a new 37-year low against the dollar. The yen remains under pressure with Japanese government bond yields well below those of other G-7 countries. Losses in the yen were limited by concerns that Japanese authorities could intervene in the forex market at any time to support the yen when Finance Minister Suzuki said Tuesday that he’s watching currency moves “closely.” Tuesday’s decline in T-note yields was also supportive of the yen.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 58% for the July 31 meeting and 26% for the September 20 meeting.
August gold (GCQ4) Tuesday closed down -5.50 (-0.24%), and September silver (SIU24) closed up +0.045 (+0.15%). Precious metals settled mixed on Tuesday, with silver climbing to a 1-week high. A weaker dollar Tuesday was supportive of precious metals. Also, Tuesday’s decline in global bond yields is bullish for precious metals. In addition, ongoing Middle East tensions are boosting the safe-haven demand for precious metals. Finally, political uncertainty in France supports safe-haven demand for precious metals ahead of the second round of France’s parliamentary elections this Sunday. Silver had carryover support Tuesday from a rally in copper prices to a 1-week high.
Gold prices gave up an early advance Tuesday and turned lower after the US May JOLTS job openings unexpectedly increased, and Eurozone Jun core CPI was unchanged from May at +2.9% y/y, hawkish factors for central bank policies. Also, hawkish comments Monday night from ECB President Lagarde undercut gold prices when she said that the ECB doesn’t yet have sufficient evidence that inflation threats have passed, bolstering expectations the ECB will delay further interest rate cuts.
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.
