The dollar index (DXY00) Monday recovered from a 3-week low and finished up by +0.12%. Short covering in the dollar Monday propelled prices higher ahead of Fed Chair Powell’s semiannual testimony to Congress on Tuesday. Also, the US May consumer credit report was stronger than expected and supported the dollar.
US May consumer credit rose +$11.354 billion, stronger than expectations of +$8.850 billion and the largest increase in 4 months.
The markets are discounting the chances for a -25 bp rate cut at 6% for the July 30-31 FOMC meeting
and 72% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) on Monday fell back from a 3-1/2 week high and finished down by -0.16%. The euro came under pressure Monday on economic news that showed the Eurozone July Sentix investor confidence index fell more than expected to a 4-month low and weaker-than-expected German trade news for May.
On Monday, the euro initially moved higher due to reduced political tensions in France. Sunday’s parliamentary elections in France produced a divided parliament with no clear majority, making it less likely that any extreme policy measures can be passed. Also, hawkish comments from ECB Governing Council member Muller boosted the euro when he said the ECB can’t rush with cutting interest rates as wage growth remains elevated.
The Eurozone July Sentix investor confidence index fell -7.6 to a 4-month low of -7.3, weaker than expectations of -0.5.
German May exports fell -3.6% m/m, weaker than expectations of -2.8% m/m and the biggest decline in 5 months. May imports fell -6.6% m/m, weaker than expectations of -1.0% m/m and the biggest decline in 17 months.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 5% for the July 18 meeting and 72% for the September 12 meeting.
USD/JPY (^USDJPY) on Monday rose by +0.01%. The yen on Monday fell back from a 1-1/2 week high against the dollar and posted modest losses. A recovery in the dollar index Monday from a 3-week low weighed on the yen. Also, bond yield divergence continues to undercut the yen, with Japanese government bond yields well below those of other G-7 nations.
The yen Monday initially moved higher as signs of strong wage growth in Japan are hawkish for BOJ policy and supportive for the yen after Japan’s May labor cash earnings rose by the most in 11 months. The yen also garnered support from Monday’s stronger-than-expected Japan Jun eco watchers outlook survey. Lower T-note yields on Monday were also supportive of the yen.
Japan's May labor cash earnings rose +1.9% y/y, the biggest increase in 11 months but below expectations of +2.1% y/y.
The Japan Jun eco watchers outlook survey rose +1.6 to 47.9, stronger than expectations of 46.5.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 53% for the July 31 meeting and 46% for the September 20 meeting.
August gold (GCQ4) Monday closed down -34.20 (-1.43%), and September silver (SIU24) closed down -0.776 (-2.45%). Precious metals prices Monday posted moderate losses. A stronger dollar on Monday was bearish for metals. Also, safe-haven demand for precious metals receded Monday as French political risks subsided after Sunday’s parliamentary elections in France resulted in a hung parliament, which makes it less likely that extreme policies by the far-right party can be implemented. Reduced central bank buying of gold is another negative factor for prices after the People’s Bank of China didn’t add gold to its reserves for a second consecutive month in June. In addition, Monday’s rally in the S&P 500 to a new record high curbed safe-haven demand for precious metals. Silver prices were also weighed down on signs of weakness in the German economy that are negative for industrial metals demand after German trade news for May was weaker than expected.
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.
