The dollar index (DXY00) today is slightly lower by -0.11%. The dollar is being undercut by today's -6.5 bp decline in the 10-year T-note yield, which undercut the dollar's interest rate differentials.
The dollar is also being undercut as the markets this week slightly boosted the odds for a rate cut at next week's meeting to 7% from 3% on Monday, while the markets are now expecting a 100% chance of a rate cut at the following meeting on September 17-18, up from 97% on Monday.
The main bullish factor for the dollar is today's US economic reports, which were mostly stronger than expected.
US Q2 real GDP rose +2.8% (y/y annualized), stronger than expectations of +2.0% and up from Q1's growth rate of +1.4%. In addition, Q3 personal consumption rose +2.3%, stronger than expectations of +2.0% and up from Q1's growth rate of +1.5%. The GDP report helped to ease market fears about reduced consumer spending and a slowing economy. The inflation news in the report was positive, with the GDP price index easing to +2.3% from +3.1% in Q1 and the core PCE price index falling to +2.9% from +3.7% in Q1.
Looking ahead, the markets are expecting US GDP to ease to +2.0% in Q3 and +1.6% in Q4. On an annual basis, the markets are expecting US GDP to ease to +1.8% in 2025 from an expected growth rate of +2.3% in 2024 and +2.5% in 2023.
US weekly initial unemployment claims fell by -8,000 to 235,000, which showed a slightly stronger labor market than expectations for a decline to 238,000. Weekly continuing claims fell -16,000 to 1.851 million, showing a slightly stronger labor market than expectations for a report of 1.868 million.
US June durable goods orders plunged by -6.6%, much weaker than expectations of +0.3%. However, the decline was mostly in the airline segment since June durable goods orders ex-transportation rose +0.5% m/m, stronger than expectations of +0.2%. June capital goods orders excluding defense and aircraft, a proxy for US corporate capital spending, rose +1.0%, stronger than expectations of +0.2% and better than May's report of a revised -0.9%.
The markets are discounting the chances for a -25 bp rate cut at 7% for next week's July 30-31 FOMC meeting, and 100% for the following meeting on Sep 17-18 if the FOMC does not cut rates next week.
EUR/USD (^EURUSD) is slightly higher by +0.08% on dollar weakness. However, the euro has been undercut by the rise in the market odds for an ECB rate cut at its next meeting in September to the current level of 93% from 75% on Monday.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the September 12 meeting.
USD/JPY (^USDJPY) is down -0.21%. The yen continues to see support as the market odds rose for a BOJ rate hike at next week's meeting to the current level of 71% from 38% on Monday. Ruling LDP Secretary-Genera Motegi this week called for higher interest rates to combat yen weakness, joining the view of Minister for Digital Transformation Kono and illustrating political support for higher interest rates and a yen recovery.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 71% for next week's July 31 meeting and 100% for the September 20 meeting if there is no rate hike at the July 31 meeting.
August gold (GCQ24) is down -53.1 (-2.22%), and September silver (SIU24) is down -1.456 (-4.97%). Gold is being undercut by reduced inflation concerns after today's US Q2 core PCE price index fell to +2.9% from +3.7% in Q1. Silver prices are seeing weakness on the recent theme that the global economy is weakening.
Gold has underlying support today from the lower dollar, lower T-note yields, and increased expectations for rate cuts from the Fed and ECB. Gold has underlying support after long gold holdings in ETFs rose to a 3-1/2 month high of 2,554.3 metric tons last Thursday, although gold holdings have since tailed off a bit.
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.
