The dollar index (DXY00) Friday fell by -0.86% and posted a 2-week low. Friday’s weaker-than-expected U.S. Jun nonfarm payrolls report weighed on the dollar. Also, strength in the yen undercut the dollar after the yen rallied to a 2-week high against the dollar Friday on signs of wage pressures in Japan, which may prompt the BOJ to adjust its easy policy stance as soon as this month’s meeting.
U.S. Jun nonfarm payrolls rose +209,000, weaker than expectations of +230,000 and the smallest increase in 2-1/2 years. Also, May nonfarm payrolls were revised lower to +306,000 from the initially reported +339,000. The Jun unemployment rate fell -0.1 to 3.6%, right on expectations.
U.S. Jun average hourly earnings rose +0.4% m/m and +4.4% y/y, stronger than expectations of +0.3% m/m and +4.2% y/y.
Positive comments Friday from Chicago Fed President Goolsbee were supportive of the dollar when he said policymakers are on a "golden path" to ease price growth without triggering a recession and that "we're getting to a more sustainable pace, which is what we need to do for inflation."
EUR/USD (^EURUSD) Friday rose +0.73% and posted a 1-1/2 week high. Dollar weakness Friday sparked short covering in the euro. The euro Friday also moved higher after bund yields jumped on hawkish comments from ECB President Lagarde. The 10-year German bund yield posted a 3-3/4 month high Friday, strengthening the euro’s interest rate differentials after Lagarde said policymakers still have "work to do" to bring inflation under control.
ECB President Lagarde said policymakers still have "work to do" to bring inflation under control, and the ECB "won't hesitate" to act if officials see a simultaneous uptick in both company margins and wages.
Friday’s economic news was bearish for EUR/USD after German May industrial production fell -0.2% m/m, weaker than expectations of no change.
USD/JPY (^USDJPY) on Friday fell -1.35%. The yen on Friday rallied to a 2-week high against the dollar on speculation that better-than-expected Japanese economic news on labor cash earnings may push the BOJ to adjust its easy policy stance as soon as this month’s meeting. The strength in earnings pushed the 10-year JGB bond yield Friday to a 1-month high, supporting the yen.
Friday’s Japanese economic news was mixed for the yen. On the positive side, the May leading index CI unexpectedly rose +1.4 to a 6-month high of 109.5, stronger than expectations of a decline to 97.6. Also, May labor cash earnings rose +2.5% y/y, stronger than expectations of +1.2% y/y and the largest increase in 5 months. On the negative side, May household spending fell -4.0% y/y, weaker than expectations of -2.5% y/y.
August gold (GCQ3) Friday closed up +17.1 (+0.89%), and Sep silver (SIU23) closed up +0.399 (+1.74%). Precious metals prices Friday settled moderately higher. A decline in the dollar index Friday to a 2-week low was bullish for metals prices. Also, Friday’s smaller-than-expected increase in U.S. Jun nonfarm payrolls was supportive for gold as it eases the pressure on the Fed to keep raising interest rates. However, hawkish comments Friday from ECB President Lagarde were bearish for metals when she said policymakers still have "work to do" to bring inflation under control. Also, ongoing fund liquidation of gold is a bearish factor for prices as holdings in gold ETFs fell to a 3-1/2 month low on Thursday.
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.
