The dollar index (DXY00) today is up by +0.31%. The dollar raced to its high today as T-note yields rose after the May ISM services index rose more than expected, a hawkish factor for Fed policy. The euro is being undercut by expectations for the ECB to cut interest rates on Thursday. Also, today’s mixed news on Japanese wages weighed on the yen to the dollar’s benefit. On the bearish side for the dollar, the US May ADP employment change rose less than expected, a dovish factor for Fed policy.
The US May ISM services index rose +4.4 to 53.8, stronger than expectations of 51.0 and the highest level in 9 months.
The US May ADP employment change rose +152,000, weaker than expectations of +175,000.
The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting, 17% for the following meeting on July 30-31, and 76% for the meeting after that on Sep 17-18.
EUR/USD (^EURUSD) today is down by -0.10%. Dovish Eurozone economic news today is undercutting the euro. Eurozone Apr producer prices fell more than expected and the Eurozone May S&P composite PMI was revised lower. Also, expectations that the ECB will cut its main refinancing rate by -25 bp at Thursday's meeting are negative for the euro.
Eurozone Apr PPI fell -1.0% m/m and -5.7% y/y, weaker than expectations of -0.7% m/m and -5.3% y/y.
The Eurozone May S&P composite PMI was revised downward by -0.1 to 52.2 from the previously reported 52.3.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% 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 64% chance of a -25 bp rate cut at the September 12 meeting.
USD/JPY (^USDJPY) today is up by +0.96%. The yen is under pressure today on mixed Japanese wage news that could prompt the BOJ to delay tightening monetary policy. Losses in the yen accelerated today after T-note yields recovered from early losses and moved higher.
Japan Apr labor cash earnings rose +2.1% y/y, stronger than expectations of +1.8% y/y and the largest increase in 10 months. However, Apr cash earnings on the same sample base rose +1.7% y/y, weaker than expectations of +2.1% y/y.
The Japan May Jibun Bank services PMI was revised upward by +0.2 to 53.8 from the previously reported 53.6.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 15% for the June 14 meeting.
August gold (GCQ4) today is up +9.20 (+0.39%), and July silver (SIN24) is up +0.038 (+0.13%). Precious metals today are modestly higher. Precious metals found support on today’s weaker-than-expected US May ADM employment change, which was dovish for Fed policy. Also, expectations that the ECB will cut interest rates on Thursday have boosted demand for gold as a store of value.
Precious metals fell back from their best levels as T-note yields rose after the US May ISM services index rose more than expected, a hawkish factor for Fed policy. Strength in the dollar today is also limiting the upside in 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.
