The dollar index (DXY00) Thursday rose by +0.52%. The dollar rallied Thursday on positive carryover from Wednesday when the FOMC projected only 25 bp of rate cuts this year compared to 75 bp of rate cuts back in March. Gains in the dollar were limited after US May producer prices rose less than expected, and weekly initial unemployment claims unexpectedly rose to a 10-month high, dovish factors for Fed policy.
US weekly initial unemployment claims unexpectedly rose +13,000 to a 10-month high of 242,000, showing a weaker labor market than expectations of a decline to 225,000.
US May PPI final demand unexpectedly eased to +2.2% y/y from +2.3% y/y in April, weaker than expectations of an increase of +2.5% y/y. May PPI ex-food and energy unexpectedly eased to +2.3% y/y from +2.5% y/y in April, weaker than expectations of +2.5% y/y.
The markets are discounting the chances for a -25 bp rate cut at 12% for the July 30-31 FOMC meeting and 65% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) Thursday fell by -0.63%. Strength in the dollar Thursday undercut the euro. The euro was also under pressure after Thursday’s economic news showed an unexpected decline in Eurozone Apr industrial production. In addition, political uncertainty in France continues to weigh on the euro after French President Macron on Sunday called for early parliamentary elections.
Eurozone Apr industrial production unexpectedly fell -0.1% m/m versus expectations of a +0.2% m/m increase.
ECB Governing Council member Muller said Eurozone inflation could quicken again, and “in order to achieve our goal, interest rates presumably still need to stay above average for some time.”
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 13% for the July 18 meeting and 62% for the September 12 meeting.
USD/JPY (^USDJPY) Thursday rose by +0.14%. The yen was under pressure Thursday from a stronger dollar, and some position-squaring ahead of Friday’s BOJ meeting results. Losses in the yen were limited by falling T-note yields. The markets expect no change to BOJ policy at the conclusion of Friday’s meeting, but the BOJ may discuss when it will begin cutting its bond purchases.
The Japan Q2 BSI all industry business conditions survey improved to +0.4% q/q from 0.0% q/q in Q1.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 5% for the June 14 meeting and at 55% for the July 31 meeting.
August gold (GCQ4) Thursday closed down -36.8 (-1.56%), and July silver (SIN24) closed down -1.201 (-3.97%). Precious metals retreated Thursday, with silver falling sharply to a 4-week low. Precious metals were under pressure from negative carryover from Wednesday when the FOMC signaled only 25 bp of rate cuts this year versus projections of 75 bp of rate cuts back in March. Also, strength in stocks Thursday curbed safe-haven demand for precious metals. Gold prices also fell on a decline in inflation expectations, which reduces demand for gold as an inflation hedge after the 10-year breakeven inflation rate fell to a 4-1/4 month low Thursday.
On the positive side for precious metals was Thursday’s US jobless claims and producer price reports, which were dovish for Fed policy. Also, Thursday’s decline in T-note yields was supportive of precious metals. In addition, the collapse of ceasefire talks in Gaza Wednesday signals that the war will continue, which has boosted the safe-haven demand for precious metals.
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