The dollar index (DXY00) Monday fell by -0.52% and posted a 2-week low. Lower T-note yields on Monday undercut the dollar. Losses in the dollar accelerated after Monday’s news that the US ISM manufacturing index and Apr construction spending unexpectedly declined.
The US May ISM manufacturing index unexpectedly fell -0.5 to 48.7, weaker than expectations of an increase to 49.5. The May ISM price paid sub-index fell -3.9 to 57.0, weaker than expectations of 59.0.
US Apr construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.
Comments from Minneapolis Fed President Kashkari were slightly hawkish and supportive of the dollar when he said the Federal Reserve would likely keep interest rates on hold for an "extended period of time" until new economic data convinces policymakers that inflation is on the way down.
The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting, 15% for the following meeting on July 30-31, and 51% for the meeting after that on Sep 17-18.
EUR/USD (^EURUSD) Monday rose by +0.47%. The euro recovered from early losses Monday and rallied to a 2-1/4 month high after a slide in the dollar sparked short covering in EUR/USD. The euro Monday initially moved lower after a downward revision to the Eurozone May S&P manufacturing PMI. The euro was also undercut by expectations that the ECB will cut its main refinancing rate by -25 bp at Thursday's meeting.
The Eurozone May S&P manufacturing PMI was revised downward by -0.1 to 47.3 from the previously reported 47.4.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for Thursday’s ECB meeting. If the ECB cuts rates by -25 bp on Thursday as expected, then the markets are expecting a 0% chance of another rate cut at the following meeting on July 18 and a 61% chance of a -25 bp rate cut at the September 12 meeting.
USD/JPY (^USDJPY) Monday fell by -0.68%. The yen Monday rallied to a 1-1/2 week high against the dollar on the decline in T-note yields. Gains in the yen accelerated Monday after the dollar weakened when the US May ISM manufacturing index unexpectedly declined. Monday's Japanese economic news was weaker than expected and was bearish for the yen after the May Jibun Bank manufacturing PMI was revised downward and Q1 capital spending rose less than expected.
The Japan May Jibun Bank manufacturing PMI was revised downward by -0.1 to 50.4 from the previously reported 50.5.
Japan's Q1 capital spending rose +6.8% y/y, weaker than expectations of +11.0% y/y. Also, Q1 capital spending ex-software rose +6.8% y/y, weaker than expectations of +8.4% y/y.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 33% for the June 14 meeting.
August gold (GCQ4) Monday closed up +23.50 (+1.00%), and July silver (SIN24) closed up +0.344 (+1.13). Precious metals shook off early losses on Monday and posted moderate gains after the dollar index dropped to a 2-week low. Also, Monday’s decline in global government bond yields supports precious metals. Gains in gold accelerated Monday after the US May ISM manufacturing index unexpectedly declined, which bolstered expectations for Fed rate cuts. Silver garnered support Monday on signs of strength in Chinese manufacturing activity after the China May Caixin manufacturing PMI rose +0.3 to 51.7, the highest level in 23 months and a positive factor for industrial metals demand.
Hawkish comments Monday from Minneapolis Fed President Kashkari were bearish for gold when he said the Federal Reserve will likely keep interest rates on hold for an "extended period of time."
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.
