The dollar index (DXY00) Friday climbed to a 1-1/2 week high and finished up by +0.37%. The dollar found support from Friday’s US personal spending and the core PCE reports, which dampened speculation the Fed will cut interest rates by 50 bp at next month’s FOMC meeting. The dollar also found support from month-end position rebalancing. In addition, higher T-note yields Friday gave the dollar a boost.
US July personal spending rose +0.5% m/m, right on expectations. July personal income rose +0.3% m/m, stronger than expectations of +0.2% m/m.
The US July core PCE price index, the Fed's preferred inflation gauge, remained unchanged from June at +2.6% y/y, better than expectations of an increase to +2.7% y/y.
The US Aug MNI Chicago PMI unexpectedly rose ++0.8 to 46.1, stronger than expectations of a decline to 44.8.
The University of Michigan's Aug US consumer sentiment index was revised upward by +0.1 to 67.9, weaker than expectations of 68.1.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 31% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) on Friday fell to a 1-1/2 week low and finished down by -0.24%. The euro edged lower Friday after Eurozone Aug consumer prices rose at the slowest pace in 3 years, a dovish factor for ECB policy. However, losses in the euro were contained after the Eurozone July unemployment rate unexpectedly fell to a record low, a hawkish factor for ECB policy. Also, comments Friday from ECB Executive Board member Schnabel were supportive of the euro when she said the ECB shouldn't lower interest rates too quickly.
The Eurozone Aug CPI eased to 2.2% y/y from 2.6% y/y, right on expectations and the smallest increase in 3 years. Also, the Aug core CPI eased to 2.8% y/y from 2.9% y/y in Jul, right on expectations.
The Eurozone July 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%.
ECB Executive Board member Schnabel said the ECB shouldn't lower interest rates too quickly as risks to inflation's return to 2% persist.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.
USD/JPY (^USDJPY) on Friday rose by +0.77%. The yen was under pressure Friday from weaker-than-expected Japanese economic reports. The yen extended its losses Friday after T-note yields rose.
The yen found some support after Japan Aug Tokyo consumer prices rose more than expected, a hawkish factor for BOJ policy.
Japan's July industrial production rose +2.8% m/m, weaker than expectations of +3.5% m/m.
Japan's July retail sales rose +0.2% m/m, weaker than expectations of +0.4% m/m.
The Japan July jobless rate unexpectedly rose +0.2 to a 17-month high of 2.7%, showing a weaker labor market than expectations of no change at 2.5%.
Japan Aug Tokyo CPI rose +2.6% y/y, stronger than expectations of +2.3% y/y. Also, Aug Tokyo CPI ex-fresh food and energy rose +1.6% y/y, stronger than expectations of +1.4% y/y.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +12% for the October 30-31 meeting.
December gold (GCZ24) Friday closed down -32.7 (-1.28%), and September silver (SIU24) closed down -0.826 (-2.79%). Precious metals settled moderately lower on Friday, with silver prices falling to a 2-week low. Friday’s rally in the dollar index to a 1-1/2 week high weighed on precious metals prices. Also, hawkish comments from ECB Executive Board member Schnabel undercut gold prices Friday when she said the ECB shouldn't lower interest rates too quickly. Precious metals extended their losses Friday on strength in stocks and after Friday’s US economic reports dampened speculation that the Fed will aggressively cut interest rates.
Precious metals Friday found some support after Eurozone Aug consumer prices rose at the slowest pace in 3 years, a dovish factor for ECB policy. Also, the safe-haven demand for precious metals remains strong due to tensions in the Middle East. In addition, fund buying of gold supports gold prices as long gold positions in ETFs rose to a 6-month high Thursday.
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.
