The dollar index (DXY00) Friday rose by +0.16%. The dollar Friday recovered from a 15-month low and posted modest gains. Hawkish comments from Fed Governor Waller Thursday night pushed bond yields higher and sparked some short covering in the dollar. Gains in the dollar accelerated after the University of Michigan’s U.S. July consumer sentiment index rose more than expected to a 1-3/4 year high.
The U.S. June import price index ex-petroleum fell -0.3% m/m, a bigger decline than expectations of -0.2% m/m, which was dovish for Fed policy and slightly bearish for the dollar.
The University of Michigan’s U.S. July consumer sentiment index rose +8.2 to a 1-3/4 year high of 72.6, stronger than expectations of 65.5.
The University of Michigan U.S. July 1-year inflation expectations indicator unexpectedly rose to 3.4% from 3.3% in June, worse than expectations of a decline to 3.1%. Also, the 5-10 year inflation expectations rose to 3.1%, above expectations of no change at 3.0%.
Comments late Thursday from Fed Governor Waller were hawkish for Fed policy and bullish for the dollar when he said, "I see two more 25 bp interest rate hikes in the target range over the four remaining FOMC meetings this year as necessary to keep inflation moving toward our target."
Comments Friday from Chicago Fed President Goolsbee were bullish for the dollar when he said recent consumer-price data showing inflation easing was "promising," though inflation is still higher than the Fed's 2% goal. He added that policymakers are on a "golden path" to containing inflation without triggering a recession.
EUR/USD (^EURUSD) Friday rose by +0.05% and posted a 16-1/2 month high. The euro has rallied sharply this week and has support on speculation that this week’s better-than-expected U.S inflation reports will allow the Fed to end its rate-hike cycle before the ECB can end its rate hikes. Gains in EUR/USD were limited after the German June wholesale price index fell by -2.9% y/y, the most in 3 years, which is dovish for ECB policy.
USD/JPY (^USDJPY) on Friday rose by +0.59%. The yen Friday retreated from a 1-3/4 month high against the dollar as T-note yields rose. Also, signs of economic weakness in Japan weighed on the yen after Japan May industrial production was revised lower. The yen initially rallied to a 1-3/4 month high early Friday on strength in Japanese government bond yields after the 10-year JGB bond yield climbed to a 2-1/2 month high of 0.485%.
Japan’s May industrial production was revised lower to -2.2% m/m from the initially reported -1.6% m/m, the largest decline in 4 months.
August gold (GCQ3) Friday closed up +0.6 (+0.03%), and Sep silver (SIU23) closed up +0.245 (+0.98%). Precious metals prices on Friday moved higher, with silver posting a 2-1/4 month high. Precious metals Friday moved higher on increased demand as an inflation hedge after the University of Michigan U.S. July inflation expectations indicator unexpectedly increased. Also, speculation that this week’s weaker-than-expected U.S. inflation reports will allow the Fed to soon end its rate-hiking campaign is bullish for metals. Gold prices gave up most of their gains Friday after the dollar index recovered from a 15-month low and moved higher. Also, the ongoing fund liquidation of gold is weighing on prices as holdings in gold ETFs fell to a 4-month low on Thursday.
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.
