The dollar index (DXY00) on Thursday fell by -0.14%. The dollar was under pressure Thursday after US economic news showed weekly continuing unemployment claims unexpectedly rose to a 2-1/2 year high, a sign of labor market weakness that is dovish for Fed policy. Also, weaker-than-expected US capital goods orders and pending home sales reports weighed on the dollar. On the positive side, Q1 GDP was revised upward to +1.4% (q/q annualized) from +1.3%, right on expectations.
US weekly initial unemployment claims fell -6,000 to 233,000, showing a stronger labor market than expectations of 235,000. However, weekly continuing claims unexpectedly rose +18,000 to a 2-1/2 year high of 1.839 million, showing a weaker labor market than expectations of no change at 1.828 million.
US May capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly fell -0.6% m/m versus expectations of a +0.1% m/m increase.
US Q1 GDP was revised upward to +1.4% (q/q annualized) from +1.3%, right on expectations. The Q1 core PCE price index was revised upward by 0.1 point to 3.7% from 3.6%.
US May pending home sales unexpectedly fell -2.1% m/m versus expectations of a +0.5% m/m increase.
Dovish comments from Atlanta Fed President Bostic Thursday weighed on the dollar when he said, "the risks are becoming more balanced across the Fed's two mandates," and he expects one interest rate cut this year in the fourth quarter.
The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 64% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) Thursday rose by +0.23%. The euro Thursday posted moderate gains on hawkish comments from ECB Governing Council member Kazimir, who said he "still sees a significant risk of rising inflation.” The euro also garnered support from Thursday’s economic news, which showed that the Eurozone May M3 money supply rose more than expected and by the most in 14 months. Gains in the euro are limited by political uncertainty in France ahead of the first round of France's snap legislative election on Sunday.
The Eurozone June economic confidence index unexpectedly fell -0.2 to 95.9 versus expectations of an increase to 96.1.
Eurozone May M3 money supply rose +1.6% y/y, stronger than expectations of +1.5% y/y and the biggest increase in 14 months.
ECB Governing Council member Kazimir said, "I still see a significant risk of rising inflation, which may not fully align with our expectations, so I think we could expect only one more ECB interest rate cut this year."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 70% for the July 18 meeting and 28% for the September 12 meeting.
USD/JPY (^USDJPY) Thursday fell by -0.02%. The yen finished modestly higher Thursday after short covering emerged when Japan's Vice Finance Minister and top currency official Kanda said, "We are closely monitoring market trends with a high sense of urgency." The yen on Wednesday posted a 37-year low against the dollar. Also boosting the yen Thursday was the stronger-than-expected Japan May retail sales report and an upbeat assessment of Japan’s economy by Japan's Cabinet Office.
Japan's May retail sales rose +1.7% m/m, stronger than expectations of +0.8% m/m.
Japan's Cabinet Office said the Japanese economy recovered at a moderate pace in June despite some areas of weakness, maintaining the same overall assessment for a 5th consecutive month.
Japan's Vice Finance Minister and top currency official, Kanda, said, "I have serious concerns about the rapid weakening of the yen, and we are closely monitoring market trends with a high sense of urgency."
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 52% for the July 31 meeting and 55% for the September 20 meeting.
August gold (GCQ4) Thursday closed up +23.40 (+1.01%), and July silver (SIN24) closed down -0.012 (-0.04%). Precious metals Thursday settled mixed. Precious metals prices saw support from a weaker dollar and a decline in T-note yields. In addition, Thursday’s US weekly continuing unemployment claims report unexpectedly rose to a 2-1/2 year high, a sign of labor market weakness that is dovish for Fed policy. Finally, safe-haven demand for precious metals has increased due to political uncertainty in France ahead of Sunday’s snap legislative election.
Bearish factors for precious metals prices Thursday included hawkish comments from ECB Governing Council member Kazimir, who said the risk of rising inflation may keep the ECB from cutting interest rates more than once this year. Silver prices were also undercut by weaker-than-expected US capital goods orders and pending home sales reports, which were negative reports 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.
