The dollar index (DXY00) today is down by -0.59% at a 7-1/2 month low. The dollar today is falling on a decline in T-note yields. Also, strength in stocks today has reduced liquidity demand for the dollar. In addition, dovish comments from Atlanta Fed President Bostic weighed on the dollar when he said it's possible that more than one interest rate cut by the Fed may now be needed by year-end. Losses in the dollar accelerated after Fed Chair Powell said, "The time has come for policy to adjust." The dollar declined despite today’s stronger-than-expected US July new home sales report.
US July new home sales rose +10.6% m/m to a 14-month high of 739,000, stronger than expectations of 623,000.
Fed Chair Powell said cooling in the labor market conditions is "unmistakable," and his confidence has grown that inflation is on the path to 2%. Therefore, "the time has come for policy to adjust."
Atlanta Fed President Bostic said it's possible that more than one interest rate cut by the Fed may now be needed by year-end as inflation had slowed more than he had expected.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 33% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) today is up by +0.45%. The euro is climbing today on weakness in the dollar. Also, today’s monthly Eurozone inflation expectations report was stronger than expected, a hawkish factor for ECB policy. Gains in the euro are limited after ECB Governing Council member Vujcic said the ECB has room to cut interest rates as inflation converges toward 2%.
The ECB's Eurozone July 1-year inflation expectations indicator was unchanged from June at 2.8%, stronger than expectations of an easing to 2.7%. Also, the July 3-year inflation expectations indicator unexpectedly rose to 2.4% from 2.3% in June, which was stronger than the expectations of no change at 2.3%.
ECB Governing Council member Vujcic said, "As long as data fall in line with our projections, which foresee inflation to fall to 2% in 2025, that increases confidence that we can gradually ease the restrictiveness of our monetary policy."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for the September 12 meeting.
USD/JPY (^USDJPY) today is down by -0.58%. The yen is moving higher today based on comments from BOJ Governor Ueda, who said policymakers are still on a path toward higher interest rates. Also, today’s Japan July CPI report was stronger than expected, a hawkish factor for BOJ policy and supportive of the yen. Gains in the yen accelerated after T-note yields plunged on dovish comments from Fed Chair Powell.
BOJ Governor Ueda said, "If we are able to confirm a rising certainty that the economy and prices will stay in line with forecasts, there's no change to our stance that we'll continue to adjust the degree of easing."
Japan's July national CPI was unchanged from June at +2.8% y/y, stronger than expectations of an easing to 2.7% y/y. Japan’s July national CPI ex-fresh food and energy eased to +1.9% y/y from +2.2% y/y in Jun, right on expectations and the slowest pace of increase in 1-3/4 years.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +9% for the October 30-31 meeting.
December gold (GCZ24) today is up +26.90 (+1.07%), and September silver (SIU24) is up +0.523 (+1.80%). Precious metals today are moderately higher. Today’s slump in the dollar index to a 7-1/2 month low is underpinning metals prices. Also, lower global bond yields are supportive of precious metals. In addition, dovish comments today from ECB Governing Council member Vujcic prices were positive for gold demand as a store of value when he said the ECB has room to cut interest rates as inflation converges toward 2%. 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. Gains in precious metals accelerated on dovish comments from Fed Chair Powell, who signaled lower interest rates when he said, "the time has come for policy to adjust."
Strength in stocks today has curbed safe-haven demand for precious metals. Also, hawkish comments today from BOJ Governor Ueda were bearish for gold when he said policymakers were still on a path toward higher interest rates. In addition, today’s monthly report from the ECB on Eurozone inflation expectations was stronger than expected, which is a hawkish factor for ECB policy and negative for gold.
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.
