The dollar index (DXY00) Thursday fell back from a 2-week high and finished down -0.37%. Thursday’s dovish US economic reports knocked T-note yields lower and weighed on the dollar. The dollar remained lower Thursday on dovish comments from Atlanta Fed President Bostic and New York Fed President Williams.
US weekly initial unemployment claims rose +3,000 to 219,000, showing a slightly weaker labor market than expectations of 217,000.
US Q1 GDP was revised downward to +1.3% (q/q annualized) from +1.6%, right on expectations. The Q1 core PCE price index was unexpectedly revised lower to +3.6% (q/q annualized), weaker than expectations of no change at +3.7%.
US Apr pending home sales fell -7.7% m/m, weaker than expectations of -1.0% m/m and the biggest decline in more than three years.
Wednesday evening, Atlanta Fed President Bostic said many of the different measures of inflation he looks at on his dashboard "are moving back into the target range," and he's "looking at the end of the year, the fourth quarter, as the time where we might actually think about and be prepared to reduce interest rates."
New York Fed President Williams said, "With the economy coming into better balance over time and the disinflation taking place in other economies reducing global inflationary pressures, I expect inflation to resume moderating in the second half of this year."
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) Thursday rose by +0.32%. The euro on Thursday recovered from a 2-week low and posted moderate gains. A weaker dollar Thursday supported the euro along with hawkish European economic reports.
The Eurozone Apr unemployment rate unexpectedly fell -0.1 to a record low of 6.4%, showing a stronger labor market than expectations of no change at 6.5%.
Spain's May CPI (EU harmonized) rose +3.8% y/y, stronger than expectations of +3.7% y/y, and the largest increase in 13 months.
Eurozone May economic confidence rose +0.4 to 96.0, slightly weaker than expectations of 96.1.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for its next meeting on June 6.
USD/JPY (^USDJPY) Thursday fell by -0.51%. The yen Thursday rose to a 1-week high against the dollar on weaker T-note yields. Also, short covering pushed the yen higher Thursday due to the concern that the yen is getting near the level that Japanese authorities last intervened in the forex market to support the yen. In addition, Thursday’s fall in the Nikkei Stock Index to a 1-month low sparked some safe-haven demand for the yen.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 26% for the June 14 meeting.
June gold (GCM4) Thursday closed up +1.7 (+0.07%), and July silver (SIN24) closed down -0.839 (-2.59%). Precious metals Thursday settled mixed. Gold prices recovered from a 3-week low Thursday and posted modest gains on a weaker dollar. Also, a decline in global bond yields Thursday was bullish for precious metals. In addition, dovish comments from Atlanta Fed President Bostic and New York Fed President Williams were supportive of precious metals as a store of value. Finally, precious metals prices continue to see safe-haven demand due to heightened tensions in the Middle East.
Gains in precious metals were limited Thursday after recent Fed comments and stronger-than-expected US economic news bolstered the outlook for the Fed to keep interest rates higher for longer. Also, demand for gold as an inflation hedge receded after Thursday’s news showed the US Q1 core PCE price index was unexpectedly revised slightly lower. Silver prices were also under pressure Thursday after US Apr pending home sales fell by the most in over three years, a negative factor for industrial metals demand.
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.
