The dollar index (DXY00) on Monday rose by +0.01%. The dollar recovered from early losses and posted modest gains Monday after a jump in the 10-year T-note yield sparked short covering in the dollar. Also, weakness in the yen supported the dollar after the yen tumbled to a new 37-year low against the dollar on Monday.
The dollar on Monday initially moved lower after EUR/USD rallied to a 2-week high as Frech political concerns eased when the far-right party won by a smaller-than-expected margin in the first round of France’s parliamentary elections. The dollar also came under pressure after the US Jun ISM manufacturing index and May construction spending unexpectedly declined.
The US Jun ISM manufacturing index unexpectedly fell 0.2 to a 4-month low of 48.5, weaker than expectations of an increase to 49.1. The Jun ISM price paid sub-index fell -4.9 to a 6-month low of 52.1, weaker than expectations of 55.9.
US May construction spending unexpectedly fell -0.1% m/m versus expectations of +0.2% m/m.
The markets are discounting the chances for a -25 bp rate cut at 9% for the July 30-31 FOMC meeting and 61% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) on Monday rose by +0.30% and posted a 2-week high. The euro strengthened Monday after the first round of French parliamentary elections on Sunday showed Marine Le Pen’s far-right party winning by a smaller margin than was expected, which reduces the probability that the far-right party will achieve an absolute majority that would allow it to implement extreme policies. The euro fell back from its best levels after German Jun consumer prices eased, a dovish factor for ECB policy.
The Eurozone Jun S&P manufacturing PMI was revised upward by 0.2 to 45.8 from the previously reported 45.6.
German Jun CPI (EU harmonized) eased to +2.5% y/y from +2.8% y/y in May, right on expectations.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 63% for the September 12 meeting.
USD/JPY (^USDJPY) on Monday rose by +0.37%. The yen Monday fell to a fresh 37-year low against the dollar. The yen came under pressure Monday after the Japan Jun Jibun Bank manufacturing PMI was revised lower. Losses in the yen accelerated Monday after T-note yields rose sharply. Losses in the yen were limited by concerns that with Monday’s new 37-year low, Japanese authorities could intervene in the forex market at any time to support the yen.
The Japan Jun consumer confidence index rose +0.2 to 36.4, right on expectations.
The Japan Q2 Tankan large manufacturing business conditions rose +2 to 13, stronger than expectations of no change at 11.
The Japan Jun Jibun Bank manufacturing PMI was revised down to 50.0 from the previously reported 50.1.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 61% for the July 31 meeting and 54% for the September 20 meeting.
August gold (GCQ4) Monday closed down -0.70 (-0.03%), and September silver (SIU24) closed up +0.053 (+0.18%). Precious metals on Monday settled mixed. A recovery in the dollar Monday weighed on metals prices. Also, easing French political uncertainty curbed safe-haven demand for gold Monday after Marine Le Pen’s far-right party won the first round of French parliamentary elections on Sunday by a smaller-than-expected margin. In addition, higher global bond yields on Monday were bearish for precious metals. Gains in silver were limited on Monday after the US Jun ISM manufacturing index and May construction spending unexpectedly declined, which are bearish factors for industrial metals demand.
On the positive side for precious metals was an increase in US inflation expectations that supports gold demand as an inflation hedge after the 10-year breakeven inflation rate rose to a 3-1/2 week high on Monday. Also, ongoing Middle East tensions are boosting the 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.
