The dollar index (DXY00) Friday fell by -0.03%. The dollar on Friday moved slightly lower after the US May core PCE price index, the Fed’s preferred inflation gauge, eased to +2.6% y/y, the slowest pace in 3 years, which improves the chances of Fed interest rate cuts this year.
Losses in the dollar Friday were limited on signs of strength in the US economy after the Jun MNI Chicago PMI rose more than expected to a 7-month high and the University of Michigan US Jun consumer sentiment index was revised higher than expected. Also, hawkish comments from Richmond Fed President Barkin boosted the dollar when he said that Fed policy may not be as restrictive as perceived.
US May personal spending rose +0.2% m/m, weaker than expectations of +0.3% m/m. May personal income rose +0.5% m/m, stronger than expectations of +0.4% m/m.
The US May core PCE price index eased to +2.6% y/y from +2.8% y/y in April, which was right on expectations and the slowest pace of increase in 3 years.
The US Jun MNI Chicago PMI rose +12.0 to a 7-month high of 47.4, stronger than expectations of 40.0.
The University of Michigan US Jun consumer sentiment index was revised upward to 68.2 from 65.6, stronger than expectations of 66.0.
Richmond Fed President Barkin said, "Given the remarkable strength we are seeing in the economy," he is open to the idea that the longer run rate that keeps supply and demand in balance "has shifted up somewhat" and that policy may not be as restrictive as perceived.
The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 60% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) Friday rose by +0.06%. The weaker dollar on Friday supported modest gains in the euro. The upside in the euro was contained Friday from weaker-than-expected German labor news for June. Also, Eurozone inflation expectations eased in May, a dovish factor for ECB policy. In addition, political uncertainty in France ahead of Sunday’s snap legislative election is weighing on the euro.
The Eurozone's May ECB 1-year inflation expectations eased to 2.8% from 2.9% in Apr, the slowest pace of increase in 2-1/2 years. The May 3-year inflation expectations eased to 2.3% from 2.4% in April, the slowest pace of increase in 2-1/4 years.
German Jun unemployment rose by +19,000, showing a weaker labor market than expectations of +15,000. The Jun unemployment rate rose +0.1 to a 3-year high of 6.0%, showing a weaker labor market than expectations of no change at 5.9%.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 12% for the July 18 meeting and 65% for the September 12 meeting.
USD/JPY (^USDJPY) Friday rose by +0.03%. The yen on Friday gave up an early advance and fell to a new 37-year low against the dollar. A reversal in T-note yields Friday pressured the yen after the 10-year T-note erased early losses and climbed to a 2-week high. Friday’s Japanese economic news was hawkish for BOJ policy and initially gave the yen a boost after May industrial production rose more than expected and Jun Tokyo CPI accelerated.
Japan's May industrial production rose +2.8% m/m, stronger than expectations of +2.0% m/m.
Japan Jun Tokyo CPI accelerated to +2.3% y/y from +2.2% y/y in May. Jun Tokyo CPI ex-fresh food and energy accelerated to +1.8% y/y from +!.7% y/y in May.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 58% for the July 31 meeting and 34% for the September 20 meeting.
August gold (GCQ4) Friday closed up +3.00 (+0.13%), and July silver (SIN24) closed up +0.319 (+1.10%). Precious metals Friday posted moderate gains, with gold climbing to a 1-week high. Precious metals rose after Friday’s US May core PCE price index, the Fed’s preferred inflation gauge, rose at the slowest pace in 3 years, which improves the chances that the Fed will cut interest rates this year. Also, the safe-haven demand for precious metals has increased due to political uncertainty in France ahead of Sunday’s snap legislative election. In addition, an increase in US inflation expectations supports gold demand as an inflation hedge after the 10-year breakeven inflation rate rose to a 2-week high Friday. Silver garnered support on strong economic news that showed the US Jun MNI Chicago PMI rose to a 7-month high, and Japan’s May industrial production rose more than expected, positive factors for industrial metals demand.
Precious metals fell back from their best levels today after global bond yields moved higher. Also, hawkish comments Friday from Richmond Fed President Barkin were bearish for precious metals when he said Fed policy may not be as restrictive as perceived.
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.
