The dollar index (DXY00) on Friday rose by +0.63% and posted a 1-1/2 week high. An increase in long-term U.S. inflation expectations boosted T-note yields Friday and strengthened the dollar’s interest rate differentials. Also, comments from Fed Governor Bowman were hawkish for Fed policy and bullish for the dollar when she said she expects interest rates to remain restrictive for some time. A larger-than-expected decline in the University of Michigan U.S. May consumer sentiment was bearish for the dollar.
Friday’s U.S. economic news was mixed for the dollar. On the bullish side, a deterioration of inflation expectations was hawkish for Fed policy and bullish for the dollar after the University of Michigan U.S. May 5-10 year inflation expectations unexpectedly rose +0.2 to a 12-year high of +3.2% versus expectations of a decline to +2.9%. Conversely, the University of Michigan U.S. May consumer sentiment index fell -5.8 to a 6-month low of 57.7, weaker than expectations of 63.0.
Hawkish comments Friday from Fed Governor Bowman were bullish for the dollar when she said inflation rates remain much too high, and she expects interest rates will need to stay restrictive for some time.
EUR/USD (^EURUSD) on Friday fell by -0.58% and dropped to a 1-month low. Strength in the dollar Friday weighed on the euro. The euro was also undercut by concern that the Eurozone economy will deteriorate as the ECB continues to raise interest rates after ECB Governing Council member and Bundesbank President Nagel said inflation is much too strong and more ECB rate hikes currently look necessary.
USD/JPY (^USDJPY) on Friday rose by +0.85%. The yen on Friday slid to a 1-week low and was under pressure from higher T-note yields. Also, Friday’s rally in the Nikkei Stock Index to a 17-month high reduced the safe-haven demand for the yen. In addition, the fall in the 10-year JGB bond yield to a 5-week low Friday at 0.365% weakened the yen’s interest rate differentials.
Friday’s Japanese economic news was bullish for the yen after the Japan Apr eco watchers survey outlook rose +1.6 to a 1-1/2 year high of 55.7, stronger than expectations of 55.1.
June gold (GCM3) on Friday closed down -0.70 (-0.03%), and July silver (SIN23) closed down -0.270 (-1.11%). Precious metals on Friday moved lower, with gold falling to a 1-1/2 week low and silver dropping to a 6-week low. A rally in the dollar index Friday to a 1-1/2 week high was bearish for metals. Also, higher global bond yields Friday were negative for metals prices. Economic concerns that may lead to reduced demand for industrial metals also weighed on silver prices after the University of Michigan U.S. May consumer sentiment index fell to a 6-month low.
However, on the positive side, concern about the health of the U.S. banking system and the U.S. debt limit impasse has boosted safe-haven demand for precious metals. That has led to strong fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 6-1/4 month high on 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.
