The dollar index (DXY00) Friday rose by +0.20% and posted a 7-week high. The dollar strengthened Friday as weakness in stocks boosted liquidity demand for the dollar. Also, weaker-than-expected Eurozone PMI reports on Friday undercut the euro, and the yen fell on weaker-than-expected Japanese CPI news. The dollar extended its gains on Friday’s better-than-expected US June S&P PMI reports.
The US June S&P manufacturing PMI unexpectedly rose +0.4 to 51.7, stronger than expectations of a decline to 51.0. Also, the June S&P services PMI unexpectedly rose +0.3 to a 2-year high of 55.1, stronger than expectations of a decline to 54.0.
US May existing home sales fell -0.7% m/m to a 4-month low of 4.11 million, slightly stronger than expectations of 4.10 million.
US May leading indicators fell -0.5% m/m, weaker than expectations of -0.3% m/m.
The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 62% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) on Friday fell by -0.06%. The euro gave up early gains Friday and posted modest losses on weaker-than-expected Eurozone PMI reports, a dovish factor for ECB policy. The euro also remains under pressure by French President Macron’s call for snap elections later this month, which boosts political uncertainty in France, the Eurozone’s second-largest economy.
The Eurozone June S&P manufacturing PMI unexpectedly fell -1.7 to a 6-month low of 45.6, weaker than expectations of an increase to 47.9. The June S&P composite PMI unexpectedly fell -1.4 to 50.8, weaker than expectations of an increase to 52.5.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 6% for the July 18 meeting and 70% for the September 12 meeting.
USD/JPY (^USDJPY) Friday rose by +0.39%. The yen Friday fell to a new 7-week low against the dollar. The yen was under pressure from Friday’s weaker-than-expected news on Japanese consumer prices, a dovish factor for BOJ policy. Losses in the yen were limited by concern that Japanese authorities were close to intervening in the currency market to support the yen after BOJ Governor Ueda said authorities needed to watch the forex impact on the yen on prices and growth. Also, a decline in T-note yields Friday was supportive of the yen.
Japan's May national CPI rose +2.8% y/y, increasing from +2.5% in April but slightly weaker than expectations of +2.9% y/y. May national CPI ex-food and energy rose +2.1% y/y, weaker than expectations of +2.4% y/y and the slowest pace of increase in 20 months.
The Japan Jun Jibun Bank manufacturing PMI eased to 50.1 from 50.4 in May.
BOJ Governor Ueda said the Japanese economy should keep growing above the potential growth rate, and authorities must watch the forex impact on the yen to prices and growth.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 42% for the July 31 meeting and 58% for the September 20 meeting.
August gold (GCQ4) Friday closed down -37.80 (-1.60%), and July silver (SIN24) closed down -1.207 (-3.92%). Precious metals Friday settled sharply lower. Gold prices retreated from a 2-week high and turned lower after better-than-expected US June S&P PMI reports fueled a rally in the dollar index to a 7-week high. The strong PMI reports signal strength in the US economy that is hawkish for Fed policy and bearish for precious metals. Silver prices were undercut Friday after US May existing home sales fell to a 4-month low and the Eurozone Jun S&P manufacturing PMI unexpectedly fell to a 6-month low, negative factors for industrial metals demand.
Gold prices have been supported by continued gold buying by the world’s central banks as a dollar diversification strategy. World Gold Council data for Q1 showed that the central bank of Turkey bought 30 MT of gold, China’s central bank bought 27 MT of gold, and India's central bank bought 18.5 MT of gold. Also, lower global bond yields on Friday are bullish for precious metals.
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.
