The dollar index (DXY00) on Wednesday rose by +0.29% and posted a 7-week high. The dollar was higher on hopes that U.S. lawmakers will soon reach a deal on the debt ceiling, which would be a positive factor for foreign investors. Also, Wednesday’s jump in the 10-year T-note yield to a 2-week high strengthened the dollar’s interest rate differentials. Finally, weakness in the yuan was bullish for the dollar after the yuan sank to a 5-1/2 month low Wednesday against the dollar.
Wednesday’s U.S. housing market news was mixed for the dollar. On the positive side, Apr housing starts unexpectedly rose +2.2% to 1.401 million, stronger than expectations of a decline to 1.400 million. Conversely, Apr building permits, a proxy for future construction, fell -1.5% m/m to 1.416 million, weaker than expectations of 1.430 million.
EUR/USD (^EURUSD) on Wednesday fell by -0.18% and posted a 6-week low. The euro Wednesday was under pressure from a stronger dollar. However, losses in EUR/USD were limited by hawkish comments from ECB Governing Council member Rehn who said the ECB should continue raising interest rates until core inflation declines.
Eurozone Apr new car registrations rose +17.2% y/y to 803,000; the ninth consecutive month registrations have increased.
ECB Governing Council member Rehn said, "We need to see that core inflation is clearly and sustainably on a downward trend before we stop tightening monetary policy."
USD/JPY (^USDJPY) on Wednesday rose by +0.89%. The yen on Wednesday declined for the fifth consecutive session and posted a 2-week low against the dollar. Higher T-note yields Wednesday undercut the yen. Also, Wednesday’s rally in the Nikkei Stock Index to a 19-month high curbed the safe-haven demand for the yen. In addition, hopes that U.S. lawmakers will soon agree to raise the debt ceiling reduced safe-haven demand for the yen.
Wednesday’s Japanese economic news was bullish for the yen. Japan's Q1 GDP rose +1.6% (q/q annualized), stronger than expectations of +0.8%. Also, the Q1 deflator rose +2.0%, the largest increase in 8 years. In addition, Mar industrial production was revised upward to +1.1% m/m from the initially reported +0.8% m/m.
June gold (GCM3) on Wednesday closed down -8.10 (-0.41%), and July silver (SIN23) closed up +0.004 (+0.92%). Precious metals on Wednesday settled mixed, with gold falling to a 6-week low. A rally in the dollar index to a 7-week high undercut metals prices. Also, a sharp rally in stocks reduced the safe-haven demand for precious metals on hopes that U.S. lawmakers will soon agree to raise the debt ceiling.
Silver prices on Wednesday recovered from a 1-1/2 month low and closed slightly higher on carry-over support from a rebound in copper prices, which recovered from a 5-1/2 month low and closed up more than +2%. Silver also garnered support on signs of strength in Japan’s economy that is supportive of industrial metals demand after Japan's Q1 GDP expanded at a faster-than-expected pace.
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.
