The dollar index (DXY00) Thursday rose by +0.29%. The dollar on Thursday recovered from a 3-week low and posted moderate gains on weakness in the euro and British pound. The euro fell to a 4-week low on dovish ECB comments, and the British pound fell to a 3-1/2 week low after the BOE cut interest rates. The dollar added to its gains Thursday after the equity market sold off, which boosted liquidity demand for the dollar.
Gains in the dollar were contained due to Fed-friendly US economic reports on weekly initial unemployment claims, Q2 nonfarm productivity, and the Jul ISM manufacturing index that knocked the 10-year T-note down to a 6-month low and bolstered Fed rate cut hopes. The dollar also has a negative carryover from Wednesday when Fed Chair Powell said a Fed rate cut "could be" on the table at the September FOMC meeting.
US weekly initial unemployment claims rose +14,000 to a nearly 1-year high of 249,000, showing a weaker labor market than expectations of 236,000. Weekly continuing claims rose +33,000 to a 2-1/2 year high of 1.877 million, showing a weaker labor market than expectations of 1.855 million.
US Q2 nonfarm productivity rose +2.3%, stronger than expectations of +1.8%. Q2 unit labor costs rose +0.9%, weaker than expectations of +1.7%.
The US Jul ISM manufacturing index unexpectedly fell -1.7 to 46.88, weaker than expectations of an increase to 48.8 and the steepest pace of contraction in 8 months.
US Jun construction spending unexpectedly fell -0.3% m/m, weaker than expectations of an increase of +0.2% m/m.
The markets are discounting the chances for a -25 bp rate cut at 100% for the Sep 17-18 FOMC meeting.
EUR/USD (^EURUSD) Thursday fell by -0.36% and posted a 4-week low. Dollar strength on Thursday undercut the euro. Also, Thursday’s economic news showed the Eurozone Jun unemployment rate unexpectedly increased, indicating labor market weakness that is dovish for ECB policy. The euro fell to its lows Thursday on dovish comments from ECB Governing Council member Stournaras who said the ECB may cut interest rates twice more this year to aid the struggling Eurozone economy.
The Eurozone Jun unemployment rate unexpectedly rose +0.1 to 6.5%, showing a weaker labor market than expectations of no change at 6.4%.
The Eurozone Jul S&P manufacturing PMI was revised upward by +0.2 to 45.8 from the previously reported 45.6.
ECB Governing Council member Stournaras said, "I still expect two more ECB rate cuts this year if disinflation continues as expected. Also, growth is weaker than expected, which also speaks in favor of interest rate cuts."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for the September 12 meeting.
USD/JPY (^USDJPY) Thursday fell by -0.26%. The yen on Thursday added to Wednesday’s sharp gains and posted a 4-1/2 month high against the dollar. A slump in T-note yields Thursday supported gains in the yen. The yen also had some positive carryover from Wednesday when the BOJ unexpectedly raised its benchmark interest rate to 0.25% from a range of 0% to 0.1% and said it would reduce its monthly pace of bond purchases.
The Japan Jul Jibun Bank manufacturing PMI was revised downward by -0.1 to 49.1 from the previously reported 49.2.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 13% for the September 20 meeting.
December gold (GCZ24) Thursday closed up +7.80 (+0.32%), and September silver (SIU24) closed down -0.461 (-1.59%). Precious metals settled mixed on Thursday, with gold posting a 2-week high. Escalating geopolitical risks in the Middle East have spurred safe-haven buying of precious metals after Iran’s leader Ayatollah Ali Khamenei ordered a strike on Israel in response to the assassination of the political leader of Hamas in Tehran. Precious metals also have carryover support from Wednesday when Fed Chair Powell said a Fed rate cut "could be" on the table at the September FOMC meeting. In addition, a slide in global bond yields Thursday was bullish for precious metals. Finally, Thursday’s action by the BOE to cut interest rates supports gold demand as a store of value.
Dollar strength on Thursday was bearish for metals prices. Silver prices on Thursday gave up an early advance and turned lower after the US Jul ISM manufacturing index unexpectedly contracted by the most in 8 months, and the China Jul Caixin manufacturing PMI contracted by the most in 9 months, which was 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.
