The dollar index (DXY00) Wednesday fell by -0.31% and posted a new 7-1/2 month low. Strength in stocks Wednesday reduced liquidity demand for the dollar. Also, the larger-than-expected downward revision to US payrolls for the year ended in March showed less job growth in the US labor market than was initially reported, a dovish factor for Fed policy. The dollar sank to its lows Wednesday afternoon when the July 30-31 FOMC meeting minutes showed that a "vast majority" of officials saw a rate cut in September as likely appropriate.
The US Bureau of Labor Statistics (BLS) revised US payrolls down by -818,000 for the year through March, a bigger decline than expectations of -600,000 and the largest downward revision since 2009, signaling less job growth than was originally reported.
The minutes of the July 30-31 FOMC meeting stated that "several" officials saw the case for cutting interest rates at the July meeting, but a "vast majority" of officials saw a rate cut in September as likely appropriate.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 39% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Wednesday rose by +0.20% and posted a new 7-1/2 month high. The euro garnered support Wednesday from a weaker dollar. However, gains were muted after ECB Governing Council member Panetta weighed on the euro when he said it’s reasonable to think interest rates in the Eurozone will fall.
ECB Governing Council member and Bank of Italy Governor Panetta said that inflation in the Eurozone is falling and "it is reasonable to think that we are going toward a phase of loosening of monetary policy."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) Wednesday fell by -0.18%. The yen on Wednesday climbed to a 2-week high against the dollar. Wednesday’s slump in T-note yields was bullish for the yen. Also, Wednesday’s trade news showed Japan’s July imports rose by the most in 1-1/2 years, a sign of stronger domestic consumption that is hawkish for BOJ policy.
Japan’s trade news on Wednesday was mixed. Jul exports rose +10.3% y/y, weaker than expectations of +11.5% y/y. However, Jul imports rose +16.6% y/y, stronger than expectations of +14.6% y/y and the largest increase in 1-1/2 years.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +12% for the October 30-31 meeting.
December gold (GCZ24) Wednesday closed down -3.10 (-0.12%), and September silver (SIU24) closed up +0.016 (+0.05%). Precious metals Wednesday settled mixed. Strength in stocks on Wednesday curbed safe-haven demand for precious metals. Also, long liquidation and profit-taking are weighing on prices after gold posted a record high on Tuesday.
Wednesday’s fall in the dollar index to a 7-1/2 month low was bullish for metals. Also, Wednesday’s decline in global bond yields supported precious metals prices. In addition, dovish comments from ECB Governing Council member Panetta today supported gold when he said it’s reasonable to think that interest rates in the Eurozone will fall. Finally, safe-haven demand for precious metals remains strong on concern that Iran may yet attack Israel as retaliation for the recent assassination of a Hamas political leader in Tehran.
Gold prices rose by more than +$5.00 an ounce after Wednesday afternoon’s close when the minutes of the July 30-31 FOMC meeting were released and showed that a "vast majority" of officials saw a rate cut in September as likely appropriate.
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.
