The dollar index (DXY00) Tuesday rose by +0.13% on higher T-note yields. However, Tuesday’s rally in the S&P 500 to a new record high curbed some liquidity demand for the dollar.
Fed Chair Powell said "more good data" would strengthen confidence that inflation is moving down toward the Fed's 2% target and recent readings point to "modest further progress" on prices. He added that the labor market is strong but not overheated, and easing too soon and too much could harm inflation progress.
The markets are discounting the chances for a -25 bp rate cut at 5% for the July 30-31 FOMC meeting
and 71% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) on Tuesday fell by -0.11%. The strength of the dollar Tuesday weighed on the euro. Also, comments from ECB Governing Council member Panetta undercut the euro when he said the ECB will continue to cut interest rates at a gradual pace.
ECB Governing Council member Panetta said the ECB shouldn't be overly worried about stubborn services inflation and still-robust wage growth and that "the reduction in key interest rates will continue at a gradual pace, accompanying the return of inflation to target, if macroeconomic developments remain in line with the ECB Governing Council's expectations."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 74% for the September 12 meeting.
USD/JPY (^USDJPY) on Tuesday rose by +0.27%. The yen was under pressure Tuesday from higher T-note yields. Also, Tuesday’s rally in the Nikkei Stock Index to a new all-time high reduced safe-haven demand for the yen. In addition, bond yield divergence continues to undercut the yen, with Japanese government bond yields well below those of other G-7 nations. The yen found some support Tuesday after Japan’s June machine tool orders posted their biggest increase in 1-3/4 years.
Japan's June machine tool orders rose +9.7% y/y, the largest increase in 1-3/4 years.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 58% for the July 31 meeting and 36% for the September 20 meeting.
August gold (GCQ4) Tuesday closed up +4.40 (+0.19%), and September silver (SIU24) closed up +0.143 (+0.46%). Precious metals prices settled moderately higher on Tuesday. Fund buying of gold is supporting prices after long gold holdings in ETFs rose to a 2-3/4 month high Monday. Silver also found support from Tuesday’s news that showed Japan’s June machine tool orders rose by the most in 1-3/4 years, a bullish factor for industrial metals demand.
A stronger dollar on Tuesday was bearish for metals. Also, higher global bond yields on Tuesday were negative for precious metals. In addition, Tuesday’s rally in the S&P 500 to a new record high curbs safe-haven demand for precious metals. Reduced central bank buying of gold is another negative factor for prices after the People’s Bank of China didn’t add gold to its reserves for a second consecutive month in June.
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.
