The dollar index (DXY00) Friday fell by -1.17% and tumbled to a 4-1/2 month low. The dollar sank Friday on the weaker-than-expected US Jul payroll report that showed the Jul payrolls rose less than expected and the Jul unemployment rate rose to a 2-3/4 year high. Also, wage pressures eased after Jul average hourly earnings grew at the slowest annual pace in 3 years. The Fed-friendly payroll report boosted the chances to 100% for the Fed to cut rates by 25 bp at the September FOMC meeting and by 71% for the Fed to cut interest rates by 50 bp, a bearish development for the dollar. The dollar extended its losses Friday after US Jun factory orders posted their biggest decline in 4 years.
US Jul nonfarm payrolls rose +114,000, weaker than expectations of +175,000, and Jun nonfarm payrolls were revised lower to +179,000 from the previously reported +206,000. The Jul unemployment rate unexpectedly rose +0.2 to a 2-3/4 year high of 4.3%, showing a weaker labor market than expectations of 4.1%.
US Jul average hourly earnings eased to +3.6% y/y from +3.8% y/y in June, weaker than expectations of +3.7% y/y and the slowest pace of increase in 3 years.
US Jun factory orders fell -3.3% m/m, weaker than expectations of -3.2% m/m and the largest decline in 4 years.
Hawkish comments Friday from Chicago Fed President Goolsbee were supportive of the dollar when he said the Fed "will not overreact to any one month's economic numbers" and that policymakers will get a lot of data prior to the next FOMC meeting in September.
The markets are discounting the chances for a -25 bp rate cut at 100% for the Sep 17-18 FOMC meeting and by 80% for a -50 bp rate cut.
EUR/USD (^EURUSD) Friday rose by +1.11% and posted a 2-week high. The main bullish factor for the euro Friday was the selloff in the dollar. Gains in the euro were contained as European government bond yields fell to 6-month lows today, weighing on the euro’s interest rate differentials.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) Friday fell sharply by -1.83%. The yen on Friday added to this week’s sharp gains and soared to a 6-month high against the dollar. Friday’s plunge in T-note yields is bullish for the yen. The yen also continues to have carryover support from Wednesday when the BOJ unexpectedly raised its benchmark interest rate to 0.25% from a range of 0% to 0.1% and said it would reduce its monthly pace of bond purchases.
Swaps are pricing in the chance of a +10 bp rate increase by the BOJ at 1% for the September 20 meeting.
December gold (GCZ24) Friday closed down -11.00 (-0.44%), and September silver (SIU24) closed down -0.085 (-0.30%). Precious metals Friday gave up early gains and turned lower after hawkish comments from Chicago Fed President Goolsbee sparked long liquidation in precious metals. Precious metals rallied sharply Friday morning after the weaker-than-expected US Sep payrolls and Jun factory orders reports bolstered speculation the Fed will begin to aggressively cut interest rates. However, metals reversed their gains and turned lower when the Chicago Fed President said the Fed "will not overreact to any one month's economic numbers."
Gold and silver Friday initially moved higher, with gold posting a 2-week high and silver posting a 1-week high. Friday’s slump in the dollar index to a 4-1/2 month low is bullish for precious metals. Also, Friday’s weaker-than-expected US economic reports knocked T-note yields lower and bolstered speculation the Fed may cut interest rates several times this year, a bullish factor for precious metals. In addition, Friday’s selloff in global equity markets has boosted safe-haven demand for precious metals. Finally, escalating geopolitical risks in the Middle East have spurred safe-haven buying of precious metals after Iran’s leader Ayatollah Ali Khamenei ordered a strike on Israel in response to the assassination of a Hamas political leader in Tehran.
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.
