The dollar index (DXY00) Monday fell by -0.30%. Strength in the euro and the yen on Monday weighed on the dollar. Losses in the dollar accelerated due to dovish comments from Chicago Fed President Goolsbee, who said the Fed needs to be watchful of too-tight monetary policy.
The US Jun Dallas Fed manufacturing outlook survey rose +4.3 to -15.1, slightly weaker than expectations of -15.0.
Chicago Fed President Goolsbee said it may be appropriate for the Fed to start thinking about whether restrictive policy is putting too much pressure on the economy.
San Francisco Fed President Daly said if inflation falls more slowly than expected, it would be appropriate for the Fed to hold interest rates higher for longer, but if inflation falls quickly or the labor market cools more than expected, cutting rates would be necessary.
The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 65% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) Monday rose by +0.39%. The euro rallied Monday on hawkish comments from ECB Executive Board member Schnabel, who said the ECB is data dependent and "hasn't pre-committed to a fixed rate path." Gains in the euro were limited after German Jun IFO business confidence unexpectedly declined.
The German Jun IFO business climate index unexpectedly fell -0.7 to 88.6 versus expectations of an increase of 89.6.
ECB Executive Board member Schnabel said the risk of new inflation jolts means "the ECB hasn't pre-committed to a fixed rate path" and remains data dependent.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 5% for the July 18 meeting and 64% for the September 12 meeting.
USD/JPY (^USDJPY) Monday fell by -0.09%. The yen on Monday recovered from an 8-week low against the dollar and posted modest gains. Short covering emerged in the yen Monday after comments from Japan's top currency official, Vice Finance Minister Kanda, fueled speculation that Japanese officials are close to intervening in the forex market to prop up the yen. Also, higher Japanese government bond yields are bullish for the yen after the 10-year JGB bond yield climbed to a 1-1/2 week high Monday of 1.001%.
Verbal warnings from Japan's top currency official, Vice Finance Minister Kanda, gave the yen a boost when he said, "If there are excessive currency fluctuations, it has a negative impact on the national economy, and in the event of excessive moves based on speculation, we are prepared to take appropriate action."
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 57% for the July 31 meeting and 55% for the September 20 meeting.
August gold (GCQ4) Monday closed up +13.20 (+0.57%), and July silver (SIN24) closed down -0.089 (-0.30%). Precious metals on Monday settled mixed. Monday’s weaker dollar is bullish for metals prices. Also, fund buying of gold supported gold prices after data compiled from Bloomberg showed exchange-traded funds (ETFs) added 231,696 troy ounces of gold to their holdings last Friday, the biggest one-day increase in 3 months.
Silver prices were undercut after the German Jun IFO business confidence index unexpectedly declined and the US Jun Dallas Fed manufacturing outlook survey rose less than expected, negative factors for industrial metals demand.
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.
