The dollar index (DXY00) Friday rose by +0.36% and posted a 5-week high. The dollar moved higher Friday after the stronger-than-expected U.S. Jul PPI report boosted bond yields and bolstered speculation the Fed may raise interest rates higher and for longer. The dollar also garnered support from Friday’s slide in the Chinese yuan to a 1-month low after China’s credit growth slowed more than expected.
Friday’s U.S. Jul producer price report was hawkish for Fed policy and supportive of the dollar. Jul PPI final demand rose +0.8% y/y from +0.2% y/y in Jun, stronger than expectations of +0.7% y/y. Also, Jul PPI ex-food and energy was unchanged from Jun at +2.4% y/y, stronger than expectations of +2.3% y/y.
The University of Michigan U.S. Aug consumer sentiment fell -0.4 to 71.2, right on expectations. The University of Michigan's Aug 1-year inflation expectations unexpectedly eased to 3.3%, better than expectations of an increase to 3.5%. Also, the Aug 5-10 year inflation expectations eased to 2.9%, better than expectations of no change at 3.0%.
EUR/USD (^EURUSD) Friday fell by -0.30%. A rally in the dollar index Friday to a 5-week high sparked long liquidation in the euro. Also, Friday’s stronger-than-expected U.S. Jul PPI report pushed the 10-year T-not yield to a 1-week high and strengthened the dollar’s interest rate differentials against the euro.
USD/JPY (^USDJPY) on Friday rose by +0.15%. The yen weakened every day this week and on Friday posted a 6-week low against the dollar. Higher T-note yields Friday weighed on the yen. Also, central bank divergence is negative for the yen as Friday’s strength in the U.S Jul PPI report may prompt the Fed to keep raising interest rates while the BOJ continues to hold interest rates at record lows.
October gold (GCV3) Friday closed down -2.5 (-0.12%), and Sep silver (SIU23) closed down -0.078 (-0.34%). Precious metals prices Friday closed slightly lower. Metals gave up early gains Friday after the dollar index rallied to a 5-week high. Also, higher global government bond yields undercut precious metals prices. Siler prices were weighed down on negative carryover from a decline in copper price Friday to a 6-week low. On the positive side, a slowdown in China’s credit growth may prompt the government to increase stimulus measures, which boosted demand for precious metals as a store of value after China’s Jul new yuan loans rose at the slowest pace in nearly 14 years.
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.
