The dollar index (DXY00) Thursday fell to a 1-week low and finished down by -0.25%. Strength in the yen Thursday undercut the dollar after stronger-than-expected Japanese wage news pushed the yen to a 1-month high against the dollar. The dollar fell to its low Thursday after the US Aug ADP employment change showed employers added the fewest jobs in 3-1/2 years, a dovish factor for Fed policy. However, the dollar recovered from its worst levels after the US Aug ISM services index unexpectedly rose.
The US Aug ADP employment change rose +99,000, weaker than expectations of +145,000 and the smallest increase in 3-1/2 years.
US weekly initial unemployment claims fell -5,000 to 227,000, showing a slightly stronger labor market than expectations of 230,000.
US Q2 nonfarm productivity was revised upward to +2.5% from +2.3%, which was right on expectations. Q2 unit labor costs were revised lower to +0.4% from 0.9%, better than expectations of +0.8%.
The US Aug ISM services index unexpectedly rose +0.1 to 51.5, stronger than expectations of no change at 51.4.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 40% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Thursday climbed to a 1-week high and finished up by +0.20%. The weaker dollar Thursday supported moderate gains in the euro. Also, signs of strength in the German economy are positive for the euro after German Jul factory orders unexpectedly rose. Gains were limited, though after Eurozone Jul retail sales rose less than expected.
Eurozone Jul retail sales rose +0.1% m/m, weaker than expectations of +0.2% m/m.
German Jul factory orders unexpectedly rose +2.9% m/m, stronger than expectations of a -1.7% m/m decline.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) Thursday fell by -0.24%. The yen rallied Thursday for a third session and posted a 1-month high against the dollar. Stronger-than-expected Japanese wage news that is hawkish for BOJ policy pushed the yen higher Thursday after Jul labor cash earnings rose more than expected. Also, hawkish comments Thursday from BOJ Board member Takata were bullish for the yen when he said additional BOJ rate hikes would be justified if inflation continues to develop in line with the BOJ’s outlook.
Japan Jul labor cash earnings rose +3.6% y/y, stronger than expectations of +2.9% y/y.
BOJ Board member Takata said, "It will be necessary to adjust the degree of monetary easing by shifting up another gear" if inflationary trends align with projections.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +13% for the October 30-31 meeting.
December gold (GCZ24) Thursday closed up +17.1 (+0.68%), and December silver (SIZ24) closed up +0.542 (+1.90%). Precious metals rallied moderately on Thursday after the dollar index fell to a 1-week low. Also, a decline in global government bond yields Thursday supported precious metals. In addition, Thursday’s report on US ADP Aug employment showed employers added the fewest jobs in 3-1/2 years, which is dovish for Fed policy and bullish for gold. Silver prices garnered support Thursday after German Jul factory orders unexpectedly increased, a bullish factor for industrial metals demand.
Hawkish comments Thursday from BOJ Board member Takata were bearish for gold when he said additional BOJ rate hikes would be justified if inflation comes in as the BOJ expects. Also, a decline in inflation expectations reduced demand for gold as an inflation hedge after the US 10-year breakeven inflation rate fell to a 1-month Thursday of 2.036%.
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.
