The dollar index (DXY00) today recovered from a 13-month low and is slightly higher by +0.11%. Rising geopolitical risks in the Middle East are supporting safe-haven demand for the dollar today after Israel on Sunday launched airstrikes against Hezbollah targets in southern Lebanon. Gains in the dollar are limited after today’s news that US July core capital goods new orders unexpectedly declined. Also, dovish comments from Richmond Fed President Barkin weighed on the dollar when he said he supports "dialing down" interest rates.
US July capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly fell -0.1% m/m, slightly weaker than expectations of unchanged m/m.
Richmond Fed President Barkin said he still sees upside risks for inflation, though he supports "dialing down" interest rates in the face of a cooling labor market.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 36% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) today fell back from a 13-month high and is down by -0.22%. Today’s stronger dollar is weighing on the euro. The euro was also undercut by today’s decline in German business confidence, which points to a sluggish economy. A supportive factor for EUR/USD is today’s rise in the 10-year German bund yield to a 1-week high of 2.265%.
The German Aug IFO business confidence index fell -0.4 to 86.6, stronger than expectations of 86.0.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for the September 12 meeting.
USD/JPY (^USDJPY) today is down by -0.06%. The yen today extended last Friday’s sharp rally and posted a 3-week high against the dollar. Escalating geopolitical tensions in the Middle East sparked safe-haven demand for the yen after Israel on Sunday launched airstrikes against Hezbollah targets in southern Lebanon. The yen also found support from today’s upward revision to the Japan June leading index. Lower T-note yields today are also bullish for the yen.
The Japan June leading index CI was revised upward by +0.4 to 109.0 from the previously reported 108.6.
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 +3.20 (+0.13%), and September silver (SIU24) is up +0.075 (+0.25%). Precious metals today are slightly higher, with silver posting a 5-week high. Precious metals are climbing today on safe-haven demand from the escalation of Middle East tensions after Israel on Sunday launched airstrikes in southern Lebanon. Gold also has carryover support as a store of value from last Friday when Fed Chair Powell signaled lower interest rates when he said, "the time has come for policy to adjust" policy. In addition, dovish comments today from Richmond Fed President Barkin boosted demand for precious metals when he said he supports "dialing down" interest rates. Finally, fund buying of gold is also supporting gold prices as long gold positions in ETFs rose to a 6-month high last Friday.
Precious metals fell back from their best levels today on strength in the dollar. Silver prices were also weighed down by industrial metals demand concerns after the US July core capital goods new orders report unexpectedly declined.
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.
