The dollar index (DXY00) Wednesday fell by -0.07%. The dollar weakened Wednesday as strength in stocks reduced liquidity demand for the dollar. Also, a decline in T-note yields Wednesday weighed on the dollar. Losses in the dollar were limited due to hawkish comments from Fed Chair Powell.
Fed Chair Powell said he believes inflation is receding but "isn't yet confident" that price gains are sustainably slowing to the Fed's 2% goal.
The markets are discounting the chances for a -25 bp rate cut at 5% for the July 30-31 FOMC meeting
and 74% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) on Wednesday rose by +0.12%. The euro found support on Wednesday from a weaker dollar. Gains in EUR/USD were limited by lower government bond yields that weakened the euro’s interest rate differentials after the 10-year German bund yield Wednesday fell to a 1-1/2 week low.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 74% for the September 12 meeting.
USD/JPY (^USDJPY) Wednesday rose by +0.26%. The yen was under pressure Wednesday after Reuters reported that the BOJ will likely cut this year's economic growth forecast when it meets later this month. Weakness in the yen was limited after Japan's Jun PPI accelerated to +2.9% y/y, the fastest pace of increase in 10 months and a hawkish factor for BOJ policy. Also, a decline in T-note yields on Wednesday supported the yen.
Japan’s June PPI accelerated to +2.9% y/y from +2.6% y/y in May, right on expectations and the largest increase in 10 months.
Reuters reported that the BOJ will likely cut this year's economic growth forecast when it meets later this month but will maintain its forecast that inflation will stay around its 2% target in the years through 2027.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 56% for the July 31 meeting and 42% for the September 20 meeting.
August gold (GCQ4) Wednesday closed up +11.80 (+0.50%), and September silver (SIU24) closed down -0.042 (-0.14%). Precious metals prices Wednesday settled mixed. The dollar’s weakness on Wednesday supported gains in metals. Also, Wednesday's decline in global government bond yields was bullish for precious metals. Fund buying of gold is another bullish factor after long gold holdings in ETFs rose for a sixth consecutive session Tuesday to a 2-3/4 month high.
Precious metals fell back from their best levels Wednesday, with silver falling into negative territory on hawkish comments from Fed Chair Powell, who said he "isn't yet confident" that price gains are sustainably slowing to the Fed's 2% goal. Also, Wednesday’s rally in the S&P 500 to a new record high curbed some safe-haven demand for precious metals.
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.
