The dollar index (DXY00) Wednesday rose +0.32%. The dollar on Wednesday recovered from modest losses and moved higher on strength in T-note yields. Also, a slump in stocks boosted the liquidity demand for the dollar. Gains in the dollar accelerated Wednesday after the release of the hawkish minutes of the Jun 13-14 FOMC meeting. Wednesday’s weaker-than-expected U.S. May factory orders report was a bearish factor for the dollar.
U.S. May factory orders rose +0.3% m/m, weaker than expectations of +0.8% m/m.
Wednesday’s Jun 13-14 FOMC meeting minutes were hawkish for Fed policy and supportive of the dollar. The minutes stated that "some" officials favored an interest rate hike but went along with a pause, and almost all officials expected more rate increases this year. Policymakers supporting a hike cited tight labor markets and relatively few signs that inflation was slowing toward the Fed's 2% goal.
The markets are discounting the odds at 85% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which indicates that the market is discounting an overall rate hike of +34 bp through November from the current effective federal funds rate of 5.08%.
EUR/USD (^EURUSD) Wednesday fell -0.23%. A stronger dollar on Wednesday weighed on the euro. EUR/USD was also under pressure from Wednesday’s economic news that showed Eurozone May PPI fell more than expected, and the Eurozone S&P Jun composite PMI was revised lower, which was dovish for ECB policy.
Eurozone May PPI fell -1.5% y/y, weaker than expectations of -1.3% y/y and the biggest decline in 2-1/2 years.
The Eurozone S&P Jun composite PMI was revised lower by -0.4 to 49.9 from the initially reported 50.3, the steepest pace of contraction in 6 months.
The ECB's monthly inflation expectations survey was dovish for ECB policy and bearish for the euro. The survey showed inflation expectations for the next 12 months fell to 3.9% in May from 4.1% in April. However, inflation expectations for the next three years were unchanged at 2.5% from April.
USD/JPY (^USDJPY) on Wednesday rose +0.13%. The yen on Wednesday gave up moderate gains and turned lower on higher T-note yields. Also, a downward revision to the Japan Jibun Bank Jun services PMI by -0.2 to 54.0 from the initially reported 54.2 is bearish for the yen. The yen Wednesday initially moved higher after a fall in global equity markets sparked safe-haven buying of the yen.
August gold (GCQ3) Wednesday closed down -2.4 (-0.12%), and Sep silver (SIU23) closed up +0.290 (+1.25%). Precious metals prices Wednesday settled mixed, with silver posting a 2-week high. Gold fell back from a 1-week high and turned lower after the dollar strengthened. Also, higher T-note yields Wednesday were bearish for metals prices. In addition, the prospects of additional Fed rate hikes have sparked fund liquidation of gold as holdings in gold ETFs fell to a 3-1/2 month low on Tuesday. However, Wednesday’s slump in global stock prices has boosted some safe-haven demand 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.
