The dollar index (DXY00) on Wednesday rose by +0.35% and posted a 2-month high. Hawkish comments Wednesday from Fed Governor Waller were supportive of the dollar when he said he “does not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective." Also, weakness in the British pound Wednesday was positive for the dollar after GBP/USD dropped to a 5-week low.
The minutes of the May 2-3 FOMC meeting were neutral for the dollar as they showed policymakers divided on whether further interest rate increases are needed. "Almost all participants stated that, with inflation still well above the committee's longer-run goal and the labor market remaining tight, upside risks to the inflation outlook remained a key factor shaping the policy outlook."
Comments Wednesday from Fed Governor Waller were hawkish and bullish for the dollar when he said he "does not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective." He added that "the choice to hike or skip at the June FOMC meeting hinges on how the data comes in over the next three weeks."
EUR/USD (^EURUSD) on Wednesday fell by -0.13% and posted a 1-3/4 month low. A stronger dollar Wednesday undercut the euro. Also, Wednesday’s economic news weighed on the dollar after the German May IFO business climate index fell more than expected. Losses in EUR/USD were limited on hawkish comments from ECB Governing Council member and Bundesbank President Nagel, who said, "Several rate hikes will still be necessary to reach a sufficiently restrictive level.”
The German May IFO business climate index fell -1.7 to 91.7, weaker than expectations of 93.0.
ECB Governing Council member and Bundesbank President Nagel said, "Several rate hikes will still be necessary to reach a sufficiently restrictive level. And we will then have to maintain this level for a sufficiently long time until inflation has come down."
USD/JPY (^USDJPY) on Wednesday rose by +0.46%. The yen on Wednesday tumbled to a 5-3/4 month low against the dollar. Strength in the dollar and higher T-note yields Wednesday weighed on the yen. However, losses in the yen were limited as the ongoing U.S. debt ceiling impasse has boosted some safe-haven demand for the yen.
June gold (GCM3) on Wednesday closed down -9.90 (-0.50%), and July silver (SIN23) closed down -0.384 (-1.63%). Precious metals on Wednesday closed lower, with silver falling to a 1-3/4 month low. Wednesday’s rally in the dollar index to a 2-month high was bearish for metals prices. Also, hawkish central bank comments undercut metals when ECB Governing Council member and Bundesbank President Nagel and Fed Governor Waller said they supported higher interest rates if inflation persists. Silver also has negative carryover from a slump in copper prices Wednesday to a 5-3/4 month low.
Losses in metals prices Wednesday were limited as the ongoing U.S. debt-ceiling impasse has sparked safe-haven demand for precious metals. Also, Wednesday’s news showed a larger-than-expected increase in UK Apr CPI, which fueled demand for gold as an inflation hedge.
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.
