The dollar index (DXY00) Thursday fell by -0.16%. Thursday’s US economic news weighed on the dollar after weekly US jobless claims rose more than expected, a dovish factor for Fed policy. Also, the US Apr trade deficit widened by the most in 1-1/2 years, a negative factor for the dollar and US GDP. In addition, the euro strengthened and weighed on the dollar on hawkish comments from ECB President Lagarde and after the ECB raised its 2024 Eurozone GDP and inflation forecasts.
US weekly initial unemployment claims rose +8,000 to 229,000, showing a weaker labor market than expectations of 220,000.
US Q1 nonfarm productivity was revised downward to +0.2% from the previously reported +0.3%, better than expectations of 0.0%. Q1 unit labor costs were unexpectedly revised lower to +4.0% from the previously reported +4.7% versus expectations of an increase to +4.9%.
The US Apr trade deficit widened to -$74.6 billion from -$69.4 billion in March, the largest deficit in 1-1/2 years and a negative factor for GDP.
The markets are discounting the chances for a -25 bp rate cut at 4% for the June 11-12 FOMC meeting, 18% for the following meeting on July 30-31, and 64% for the meeting after that on Sep 17-18.
EUR/USD (^EURUSD) Thursday rose by +0.23%. The euro found support Thursday after the ECB raised its Eurozone 2024 GDP and inflation forecasts. Also, hawkish comments from ECB President Lagarde boosted the euro when she said the ECB "will keep policy rates sufficiently restrictive for as long as necessary." Gains in EUR/USD were limited after the ECB, as expected, cut interest rates by -25 bp. Also, weaker-than-expected Eurozone economic news on Apr retail sales and German Apr factory orders weighed on the euro.
As expected, the ECB cut its main refinancing rate by -25 bp to 4.25% and said, "The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction."
The ECB raised its 2024 Eurozone GDP forecast to +0.9% from +0.6% and raised its 2024 Eurozone inflation forecast ex-food and energy to +2.8% from +2.6%.
ECB President Lagarde said the ECB "will keep policy rates sufficiently restrictive for as long as necessary," and the ECB "is not pre-committing" to a particular rate path.
Eurozone Apr retail sales fell -0.5% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 4 months.
German Apr factory orders unexpectedly fell -0.2% m/m versus expectations of a +0.6% m/m increase.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 38% for the July 18 meeting and 56% for the September 12 meeting.
USD/JPY (^USDJPY) Thursday fell by -0.24%. The yen on Thursday recovered from early losses and posted moderate gains as short covering emerged after T-note yields gave up early gains and were little changed. Dovish BOJ comments Thursday initially weighed on the yen after BOJ Governor Ueda said the BOJ wants to proceed cautiously on interest rates, and BOJ Board Member Nakamura said it's a little too early to raise interest rates at this point.
BOJ Governor Ueda said the BOJ wants to proceed cautiously on interest rates as inflation expectations are still below 2% and there are uncertainties over measuring the neutral rate.
BOJ Board Member Nakamura said he's neutral about the BOJ cutting bond purchases at its policy meeting next week, and it's a little too early to raise interest rates at this point.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 8% for the June 14 meeting and at 63% for the July 31 meeting.
August gold (GCQ4) Thursday closed up +15.40 (+0.65%), and July silver (SIN24) closed up +1.294 (+4.30%). Precious metals Thursday moved higher, with silver ending sharply higher and gold posting a 2-week high. Precious metals rose Thursday on a weak dollar and after the ECB cut interest rates by 25 bp. Gold prices also saw an increase in demand as an inflation hedge after the ECB raised its Eurozone 2024 inflation forecast. Precious metals also rose on Thursday’s US economic reports on weekly jobless claims and Q1 unit labor costs that were dovish for Fed policy. Silver prices garnered support Thursday after the ECB raised its Eurozone 2024 GDP forecast, a positive factor for industrial metals demand.
Limiting gains in precious metals Thursday was hawkish comments from ECB President Lagarde, who said the ECB "will keep policy rates sufficiently restrictive for as long as necessary." Also, a decline in inflation expectations reduced demand for gold as an inflation hedge after the 10-year breakeven inflation rate fell to a 2-1/2 month low Thursday of 2.283%.
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.
