The dollar index (DXY00) Monday fell by -0.52% and posted a 6-3/4 month low. The dollar Monday extended last Friday’s selloff on concern the Fed is behind the curve with policy support for a slowing US economy. Swap markets have now priced in a 100% chance the Fed will cut interest rates by 50 bp at the September 17-18 FOMC meeting, a bearish factor for the dollar. Also, Monday’s slump in the 10-year T-note yield to a 13-1/2 month low has weakened the dollar’s interest rate differentials. In addition, Monday’s surge in the yen is weighing on the dollar as the yen soared to a 7-month high today against the dollar.
The dollar recovered from its worst levels Monday after the US Jul ISM services index rose more than expected. Also, Chicago Fed President Goolsbee's comments supported the dollar when he said US economic growth continues at a "fairly steady level."
The US Jul ISM services index rose +2.6 to 51.4, stronger than expectations of 51.0.
Chicago Fed President Goolsbee said last month's job numbers "came in weaker than expected but are not looking yet like a recession" as US economic growth continues at a "fairly steady level."
The markets are discounting the chances for a -25 bp rate cut at 100% for the Sep 17-18 FOMC meeting and 95% for a -50 bp rate cut.
EUR/USD (^EURUSD) Monday rose by +0.37% and posted a 7-month high. Monday’s slump in the dollar was bullish for the euro. Also, Monday’s upward revision to the Eurozone Jul S&P composite PMI supported the euro. On the bearish side for the euro was Monday’s larger-than-expected decline in the Eurozone Aug Sentix investor confidence index to a 7-month low.
The Eurozone Jul S&P composite PMI was revised upward by +0.1 to 50.2 from the previously reported 50.1.
The Eurozone Aug Sentix investor confidence index fell -6.6 to a 7-month low of -13.9, weaker than expectations of -8.0.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.
USD/JPY (^USDJPY) Monday fell sharply by -1.92%. The yen on Monday added to last Friday’s gains and surged to a 7-month high against the dollar. A sudden appreciation of the yen has led to a massive unwinding of the short yen carry trade that is boosting the yen. Also, Monday’s -12% plunge in the Nikkei Stock Index to a 9-month low has boosted safe-haven demand for the yen. In addition, Monday’s slump in T-note yields is bullish for the yen.
The Japan Jul Jibun Bank services PMI was revised downward by -0.2 to 53.7 from the previously reported 53.9.
Swaps are pricing in no chance of a +10 bp rate increase by the BOJ at the September 20 meeting and a +38% chance for a +10 bp rate increase at the October 30-31 meeting.
December gold (GCZ24) Monday closed down -25.40 (-1.03%), and September silver (SIU24) closed down -1.185 (-4.17%). Precious metals Monay retreated, with gold falling to a 1-week low and silver plunging to a 3-month low. Monday's risk aversion in global asset markets has led to massive liquidation of long metals positions to cover margin calls in other assets. Also, silver prices were hammered Monday as recent weaker-than-expected US economic news has raised recession concerns, a negative factor for industrial metals demand.
Monday’s slump in the dollar index to a 6-3/4 month low limited losses in metals prices. Also, Monday’s selloff in global equity markets prompted some safe-haven demand for precious metals. In addition, Monday’s slump in global bond yields supports precious metals. Finally, escalating geopolitical risks in the Middle East have spurred safe-haven buying of precious metals after Iran’s leader Ayatollah Ali Khamenei ordered a strike on Israel in response to the assassination of a Hamas political leader in Tehran.
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.
