The dollar index (DXY00) Thursday recovered from early losses and finished up by +0.90% at a 2-week high. Stronger-than-expected U.S. economic news today on Q2 GDP, weekly jobless claims, and Jun pending home sales boosted T-note yields and supported the dollar. Also, weakness in the euro was bullish for the dollar after EUR/USD fell to a 2-week low on dovish comments from ECB President Lagarde.
U.S. weekly initial unemployment claims unexpectedly fell -7,000 to a 5-month low of 221,000, showing a stronger labor market than expectations of an increase to 235,000.
U.S. Q2 GDP rose +2.4% (q/q annualized), stronger than expectations of +1.8%, as Q2 personal consumption rose +1.6%, stronger than expectations of +1.2%. The Q2 core PCE price index eased to +3.8% q/q from +4.9% q/q in Q1, better than expectations of +4.0% q/q and the slowest pace of increase since Q1 2021.
U.S. Jun capital goods new orders nondefense ex-aircraft and parts unexpectedly rose +0.2% m/m, stronger than expectations of a decline of -0.1% m/m.
U.S. Jun pending home sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.5% m/m decline.
EUR/USD (^EURUSD) Thursday tumbled by -1.05%. The euro Thursday relinquished early gains and dropped to a 2-week low, even after the ECB raised its main refinancing rate by 25 bp as expected. EUR/USD retreated after ECB President Lagarde said, "The near-term economic outlook for the Eurozone has deteriorated,” and ECB officials "have an open mind as to what decisions will be in September,” signaling the ECB may pause its rate hike cycle.
As expected, the ECB raised its main refinancing rate by 25 bp to 4.25% and said "The Governing Council's future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target."
ECB President Lagarde said, "The near-term economic outlook for the Eurozone has deteriorated owing largely to weaker domestic demand." She added that ECB officials "have an open mind as to what decisions will be in September and in subsequent meetings, so we might hike, and we might hold" interest rates.
The German Aug GfK consumer confidence index rose +0.8 to -24.4, stronger than expectations of -24.8.
USD/JPY (^USDJPY) on Thursday fell by -0.56%. The yen Thursday recovered from early losses and moved higher on a report that said the BOJ is planning to discuss tweaking its yield curve control policy at Friday’s policy meeting. The Nikkei reported that the BOJ will consider letting long-term interest rates rise above the 0.5% upper limit of its 10-year JGB yield target by “a certain degree.” The yen Thursday initially moved lower after stronger-than-expected U.S. economic reports pushed T-note yields sharply higher.
August gold (GCQ3) Thursday closed up -24.4 (-2.24%), and Sep silver (SIU23) closed down -0.603 (-2.41%). Precious metals prices Thursday sold off to 2-week lows. Thursday’s rally in the dollar index to a 2-week high was bearish for metals. Precious metals were also under pressure from Thursday’s stronger-than-expected U.S. economic news on Q2 GDP, weekly initial unemployment claims, and Jun pending home sales that signal strength in the economy, which may prompt the Fed to keep raising interest rates. In addition, the action by the ECB Thursday to raise interest rates by 25 bp was bearish for metals. Finally, fund liquidation of long gold holdings is weighing on gold prices after long gold holdings in ETFs fell to a new 3-year low Wednesday.
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.
