The dollar index (DXY00) Monday rose by +0.37%. Monday’s stronger-than-expected US economic news was bullish for the dollar. The dollar also rose on reduced speculation that the Fed will cut interest rates aggressively as swap markets are discounting the chances for a 50 bp rate cut at next week’s FOMC meeting at 31%, down from 50% after the release of last Friday’s US payroll report. Strength in stocks Monday reduced liquidity demand for the dollar.
Monday’s US economic news was supportive of the dollar. July wholesale trade sales rose +1.1% m/m, stronger than expectations of +0.3% m/m and the largest increase in 5 months. Also, July consumer credit rose +$25.452 billion, stronger than expectations of +$10.4 billion and the most in 1-1/2 years.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 31% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Monday fell by -0.39%. The euro was under pressure Monday from a stronger dollar and news that the Eurozone Sep Sentix investor confidence index unexpectedly fell to an 8-month low. Also, expectations that the ECB will cut interest rates by 25 bp at Thursday’s policy meeting are weighing on the euro.
The Eurozone Sep Sentix investor confidence index unexpectedly fell -1.5 to an 8-month low of -15.4, weaker than expectations of an increase to -12.2.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) Monday closed up by +0.39%. The yen was under pressure Monday after Japan's Q2 GDP was unexpectedly revised lower. Also, Monday’s slide in the Nikkei Stock Index to a 1-month low boosted some safe-haven demand for the yen. In addition, higher T-note yields on Monday weighed on the yen. A bullish factor for the yen was Monday’s news that showed Japan’s Aug eco watchers survey outlook rose to a 5-month high.
Japan's Q2 GDP was unexpectedly revised lower to +2.9% (q/q annualized) from +3.1%, weaker than expectations of an upward revision to +3.2%.
The Japan Aug eco watchers survey outlook rose +2.0 to a 5-month high of 50.3, stronger than expectations of 48.6.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +14% for the October 30-31 meeting.
December gold (GCZ24) Monday closed up +8.1 (+0.32%), and December silver (SIZ24) closed up +0.468 (+1.66%). Precious metals on Monday settled moderately higher. Expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting are bullish for precious metals. Also, Monday’s weaker-than-expected Chinese Aug CPI and PPI reports bolstered the chances for the PBOC to ease monetary policy further, a supportive factor for precious metals.
Gains in precious metals were limited by a stronger dollar. Also, higher global government bond yields on Monday were negative for precious metals. A bearish factor for silver was the downward revision for Japan's Q2 GDP, a negative factor for industrial metals demand.
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.
