The dollar index (DXY00) Wednesday fell by -0.48%. The dollar retreated Wednesday after the US July trade deficit widened by the most in 2 years. Lower T-note yields Wednesday also weighed on the dollar. Losses in the dollar accelerated after the US July JOLTS job openings fell more than expected to a 3-1/2 year low, a dovish factor for Fed policy. The dollar maintained moderate losses after the dovish Fed Beige Book was released.
The US July trade deficit widened to -$78.8 billion from -$73.0 billion in June, the largest deficit in 2 years and a negative factor for Q3 GDP.
The US Jul JOLTS job openings fell -237,000 to a 3-1/2 year low of 7.673 million, showing a weaker labor market than expectations of 8.100 million.
US July factory orders rose +5.0% m/m, stronger than expectations of +4.9% m/m and the largest increase in 4 years.
The Fed Beige Book stated the number of Fed districts reporting flat or declining activity rose to nine in the month to August 26, up from five in the prior period, and that "employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook."
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 41% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Wednesday rose by +0.343 on dollar weakness. However, the euro was undercut by weakness in Eurozone producer prices and a downward revision to the Eurozone Aug S&P composite PMI, dovish factors for ECB policy. Also, dovish comments from ECB Executive Board member Cipollone and ECB Governing Council member Kazaks were negative for the euro.
The Eurozone Aug S&P composite PMI was revised down by -0.2 to 51.0 from the previously reported 51.2.
Eurozone July PPI fell -2.1% y/y, the fifteenth consecutive month that producer prices have fallen year-over-year and a dovish factor for ECB policy.
ECB Executive Board member Cipollone said the ECB shouldn't keep interest rates too high for too long as doing so could damage the economy.
ECB Governing Council member Kazaks said, "Interest rates have to go lower because the biggest part of the inflation problem has been solved. The discussion is only about how quickly and how strongly."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.
USD/JPY (^USDJPY) Wednesday fell by -1.13%. The yen rallied to a 1-week high against the dollar Wednesday and garnered some safe-haven support from the -4% plunge in the Nikkei Stock Index. The yen also has carryover support from Tuesday when Governor Ueda said the BOJ will continue to raise interest rates if the economy and prices perform as expected. Gains in the yen accelerated after the weaker-than-expected US JOLTS job openings pushed T-note yields lower.
The Japan Aug Jibun Bank services PMI was revised down by -0.3 to 53.7 from the previously reported 54.0.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +13% for the October 30-31 meeting.
December gold (GCZ24) Wednesday closed up +3.0 (+0.12%), and December silver (SIZ24) closed up +0.213 (+0.75%). Precious metals Wednesday posted moderate gains. Gold prices recovered from a 2-1/2 week low Wednesday and pushed higher after the dollar dropped on the weaker-than-expected US Jul JOLTS job openings, a dovish factor for Fed policy. Lower global bond yields on Wednesday also supported precious metals prices. In addition, dovish comments Wednesday from ECB Executive Board member Cipollone and ECB Governing Council member Kazaks boosted demand for gold as a store of value when they said they favored a rate cut at the Sep 11-12 ECB meeting.
A decline in inflation expectations curbed demand for gold as an inflation hedge after the US 10-year breakeven inflation rate on Wednesday fell to a 2-week low. Signs of weaker Chinese industrial metals demand are bearish for silver prices after the China Aug Caixin services PMI fell -0.5 to 51.6, weaker than expectations of 51.8. Silver prices had carryover pressure from a fall in copper prices to a 3-week low.
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.
