The dollar index (DXY00) on Thursday rose by +0.54% and rallied to a 2-1/2 month high. The dollar Thursday found support from better-than-expected U.S. economic news. Also, hawkish Fed comments pushed T-note yields higher and supported the dollar after Boston Fed President Collins and former St. Louis Fed President Bullard said we may need more rate hikes to control inflation. Also, a selloff in stocks Thursday boosted the liquidity demand for the dollar.
U.S. economic news Thursday was supportive of the dollar. Weekly initial unemployment claims unexpectedly fell -10,000 to 230,000, showing a stronger labor market than expectations of an increase to 240,000. Also, the Jul Chicago Fed national activity index rose +0.45 to 0.12, stronger than expectations of -0.22. In addition, July capital goods new orders nondefense ex-aircraft and parts rose +0.1% m/m, right on expectations.
Hawkish Fed comments Thursday were bullish for the collar. Boston Fed President Collins said it will take time to get inflation to the Fed's 2% goal, and "we may need additional incremental hikes, and we may be very near a place where we can hold rates at restrictive levels for some time." Former St. Louis Fed President Bullard said a pickup in economic activity this summer could delay plans for the Fed to end its interest-rate hiking campaign, saying, "This reacceleration could put upward pressure on inflation, stem the disinflation that we're seeing and instead delay plans for the Fed to change policy."
On the dovish side, Philadelphia Fed President Harker thinks policymakers have likely undertaken sufficient tightening and the Fed has "probably done enough," and that he sees interest rates on hold for the rest of the year.
EUR/USD (^EURUSD) on Thursday fell by -0.48%. The euro on Thursday fell moderately and is just above Wednesday’s 2-1/4 month low. Dollar strength Thursday weighed on the euro. Also, dovish comments from ECB Governing Council member Centeno undercut the euro when he said downside risks in the Eurozone economy have materialized. In addition, weaker-than-expected Eurozone economic news weighed on EUR/USD after French July business and manufacturing confidence fell more than expected.
The France Jul business confidence index fell -1 to a 2-1/4 year low of 99, weaker than expectations of no change at 100. Also, the France Jul manufacturing sentiment index fell -5 to a 2-1/2 year low of 96, weaker than expectations of 99.
ECB Governing Council member Centeno said the ECB "has to be cautious in deciding on additional rate hikes because downside risks that we identified in June in our forecast have materialized."
USD/JPY (^USDJPY) on Thursday rose by +0.70%. The yen retreated Thursday on dollar strength and higher T-note yields. Also, Thursday’s rally in the Nikkei Stock Index to a 1-week high reduced safe-haven demand for the yen. In addition, central bank divergence is weighing on the yen, with the Fed, BOE, and ECB raising interest rates while the BOJ maintains QE and record low rates.
October gold (GCV3) Thursday closed down -1.4 (-0.07%), and Sep silver (SIU23) closed down -0.162 (-0.66%). Precious metals prices Thursday closed slightly lower. A rally in the dollar index Thursday to a 2-1/2 month high was bearish for metals. Also, higher T-note yields on Thursday were negative for precious metals. In addition, ongoing fund liquidation in gold is bearish for gold prices after long gold holdings in ETFs fell to a 3-1/3 year low Wednesday. Finally, hawkish Fed comments weighed on precious metal after Boston Fed President Collins and former St. Louis Fed President Bullard said we may need more rate hikes to control inflation. Losses in metals prices were contained as a slump in stocks boosted 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.
