The dollar index (DXY00) today is up by +0.21%. Stronger-than-expected US economic news today is boosting the dollar after June retail sales remained flat and the June import price index ex-petroleum unexpectedly increased. The dollar also has support from the improved chances that Donald Trump will win the presidential election in November, as Trump’s fiscal and trade policies are seen as inflationary and hawkish for Fed policy. The dollar fell back from its best levels after the July NAHB housing market index unexpectedly fell -1 to a 7-month low.
US June retail sales were unchanged m/m, stronger than expectations of a -0.3% m/m decline. Also, June retail sales ex-autos rose +0.4% m/m, stronger than expectations of +0.1% m/m.
The US June import price index ex-petroleum unexpectedly rose +0.2% m/m versus expectations of a -0.2% m/m decline.
The US July NAHB housing market index unexpectedly fell -1 to a 7-month low of 42, weaker than expectations of no change at 43.
The markets are discounting the chances for a -25 bp rate cut at 7% for the July 30-31 FOMC meeting and 100% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) today gave up an early advance and is down by -0.13%. Dollar strength today is undercutting the euro. Also, today’s economic news that showed the German July ZEW survey expectations of economic growth fell to a 4-month low is bearish for the euro.
The German July ZEW survey expectations of economic growth fell -5.7 to a 4-month low of 41.8 but was stronger than expectations of 41.0.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 3% for the July 18 meeting and 81% for the September 12 meeting.
USD/JPY (^USDJPY) today is up by +0.41%. The yen is under pressure today from a stronger dollar. Also, an unexpected decline in the Japan May tertiary industry activity index was negative for the yen. In addition, government bond yield divergence is bearish for the yen with Japanese government bond yields well below those of other G-7 nations.
The Japan May tertiary industry activity index unexpectedly fell -0.4% m/m, weaker than expectations of +0.1% m/m.
A Bloomberg analysis of the Bank of Japan's (BOJ) current account indicates the BOJ spent around 2.14 trillion yen ($13.5 billion) intervening in the forex market to support the yen last Friday.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 43% for the July 31 meeting and 39% for the September 20 meeting.
August gold (GCQ24) today is up +17.07 (+0.70%), and September silver (SIU24) is up +0.034 (+0.11%). Precious metals prices today are moderately higher, with gold posting a 1-1/2 month high. Gold is climbing on carryover support from Monday when comments from Fed Chair Powell signaled the Fed may be closer to cutting interest rates, a bullish factor for precious metals. Gold has support from fund buying after long gold holdings in ETFs rose to a 3-month high Monday. In addition, gold has support as an inflation hedge after the chances of former president Trump winning the election in November increased, which could boost inflation if he pursues new tax cuts and stimulative fiscal policies.
A stronger dollar today is bearish for metals. Also, strength in stocks today has curbed some safe-haven demand for precious metals. A bearish factor for silver prices is negative carryover from today’s slide in copper prices to a 1-1/2 week low.
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.
