The dollar index (DXY00) Wednesday rallied to an 8-week high and finished up by +0.46%. Hawkish comments Wednesday from Fed Governor Bowman pushed bond yields higher and boosted the dollar when she said that inflation will remain inflated for some time, so it's not yet appropriate for the Fed to cut interest rates. Also, Wednesday’s slump in the yen to a 37-year low supported the dollar. The dollar fell back from its best levels after US May new home sales fell more than expected to a 6-month low.
US May new home sales fell -11.3% m/m to a 6-month low of 619,000, weaker than expectations of 633,000.
Fed Governor Bowman said that inflation will remain inflated for some time, so it's not yet appropriate for the Fed to cut interest rates.
The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 57% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) Wednesday fell by -0.35%. On Wednesday, the euro tumbled to an 8-week low due to pressure from a stronger dollar. Also, an unexpected decline in the German July GfK consumer confidence index was bearish for the euro. In addition, dovish comments from Governing Council member Rehn undercut the euro when he said market expectations for two more ECB rate cuts this year are “reasonable.” Finally, political uncertainty in France is weighing on the euro, with Marine Le Pen's far-right National Rally party leading in the polls ahead of the first round of France's snap legislative election on Sunday.
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) today is up by +0.68%. The yen sank to a 37-year low against the dollar Wednesday. Negative real yields in Japan, a sluggish Japanese economy, and massive government debt are weighing on the yen. Losses are limited by speculation that Japanese authorities could intervene at any time in the forex market to prop up the yen. Also, higher Japanese government bond yields supported the yen after the 10-year JGB bond yield rose to a 2-week high of 1.034% Wednesday.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 52% for the July 31 meeting and 55% for the September 20 meeting.
August gold (GCQ4) Wednesday closed down -17.60 (-0.76%), and July silver (SIN24) closed up +0.062 (+0.21%). Precious metals Wednesday settled mixed, with gold falling to a 2-week low. Wednesday’s rally in the dollar index to an 8-week high undercut metals prices. Also, higher global bond yields on Wednesday were bearish for precious metals. In addition, hawkish comments Wednesday from Fed Governor Bowman dampened expectations for Fed rate cuts this year when she said it's not yet appropriate for the Fed to cut interest rates.
Precious metals have underlying support on increased safe-haven demand from political uncertainty in France as polls show Marine Le Pen's far-right National Rally party leading ahead of the first round of France's snap legislative election on Sunday. Silver saw support after long silver holdings in ETFs rose to a 1-month high Tuesday.
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.
