The dollar index (DXY00) Monday rose by +0.22% and posted a 2-week high. The dollar garnered support Monday from weakness in the Canadian dollar, which fell to an 8-1/2 month low against the dollar, and weakness in the British pound, which fell to a 3-1/2 week low against the dollar. Also, short covering ahead of the Tue/Wed FOMC meeting boosted the dollar. A decline in T-note yields Monday limited the strength of the dollar.
Monday’s US economic news was bearish for the dollar after the Jul Dallas Fed manufacturing outlook level of general business activity survey unexpectedly fell -2.4 to -17.5, weaker than expectations of an increase to -14.2.
The markets are discounting the chances for a -25 bp rate cut at 4% for this week's Tue/Wed FOMC meeting and 100% for the following meeting on Sep 17-18 if the FOMC does not cut rates this week.
EUR/USD (^EURUSD) Monday fell by -0.29% and posted a 3-week low. Monday’s dollar strength weighed on the euro. Also, the euro is being undercut by the rise in the market odds for an ECB rate cut at its next meeting in September to the current level of 91% from 75% last Monday.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 91% for the September 12 meeting.
USD/JPY (^USDJPY) Monday rose by +0.14%. The yen Monday fell moderately after the Nikkei Stock Index rallied more than +2%, which curbed safe-haven demand for the yen. Losses in the yen are limited on speculation the BOJ will announce that it will cut its monthly bond purchases at the conclusion of Wednesday’s 2-day policy meeting. Short-covering also boosted the yen due to Monday’s decline in T-note yields.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 57% for Thursday’s meeting and 100% for the September 20 meeting if there is no rate hike at the July 31 meeting.
August gold (GCQ24) Monday closed down -3.20 (-0.13%), and September silver (SIU24) closed down -0.154 (-0.55%). Precious metals Monday gave up an early advance and posted moderate losses, with silver falling to a 2-1/2 month low. Monday’s rally in the dollar index to a 2-week high was bearish for metals. Also, reduced gold demand from China is negative for prices after the China Gold Council reported total demand for gold bullion in China in the first half of 2024 fell -6% y/y to 524 MT. In addition, Monday’s decline in the US 10-year breakeven inflation rate to a 2-week low has reduced demand for gold as an inflation hedge.
Monday’s decline in global bond yields was bullish for precious metals prices. Also, geopolitical concerns in the Middle East have boosted the appeal of precious metals as a haven asset. In addition, short covering boosted precious metals Monday ahead of this week’s monetary policy meetings from the BOJ, the Fed, and the BOE. Gold has support from fund demand after long gold holdings in ETFs rose to a 5-month high of 2,568 metric tons last Friday.
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.
