The dollar index (DXY00) Wednesday rose by +0.23%. Higher T-note yields Wednesday supported moderate gains in the dollar. Also, weakness in the yen is giving the dollar a boost after the yen tumbled more than -1% Wednesday on dovish comments from BOJ Deputy Governor Uchida, who said the BOJ won’t raise interest rates further when financial markets are in turmoil. A swoon in stocks Wednesday afternoon boosted some liquidity demand for the dollar.
US Jul consumer credit rose +$8.934 billion, weaker than expectations of +$10.000 billion.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 77% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Wednesday fell by -0.05%. Strength in the dollar on Wednesday weighed on the euro. The euro was also under pressure Wednesday on dovish comments from ECB Governing Council member Rehn, who said ECB rate cuts could continue if inflation slows. The euro found support after German June industrial production rose by the most in 16 months.
German June industrial production rose +1.4% m/m, stronger than expectations of +1.0% m/m and the largest increase in 16 months.
German trade news today was weaker than expected and negative for the euro as June exports fell -3.4% m/m, weaker than expectations of -1.5% m/m and the biggest decline in 6 months. Also, June imports rose +0.3% m/m, weaker than expectations of +2.5% m/m.
ECB Governing Council member Rehn said the ECB may continue cutting interest rates if confidence in the slowing inflation trend continues.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) Wednesday rose sharply by +1.79%. The yen fell sharply against the dollar Wednesday after BOJ Deputy Governor Uchida said the BOJ won’t raise interest rates further if financial markets are unstable. Also, weaker-than-expected Japanese economic news weighed on the yen after Japan’s June leading index CI fell more than expected to a 14-month low. In addition, higher T-note yields on Wednesday undercut the yen.
The Japan June leading index CI fell -2.6 to a 14-month low of 108.6, weaker than expectations of 108.8.
BOJ Deputy Governor Uchida said, "I believe that the BOJ needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile."
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +32% for the October 30-31 meeting.
December gold (GCZ24) Wednesday closed up +0.80 (+0.03%), and September silver (SIU24) closed down -0.272 (-1.00%). Precious metals Wednesday settled mixed. Dovish comments on Wednesday from GOJ Deputy Governor Uchida boosted demand for precious metals as a store of value when he said the BOJ will refrain from raising interest rates further if financial markets are in turmoil. Also, fund demand for gold is supportive for prices after long gold positions in ETFs rose to a 5-1/2 month high on Tuesday. In addition, precious metals prices have underlying support from geopolitical risks in the Middle East after Iran’s leader Ayatollah Ali Khamenei ordered a strike on Israel in response to the assassination of a Hamas political leader in Tehran.
Wednesday’s stronger dollar undercut precious metals prices. Also, higher global bond yields Wednesday were negative for precious metals Industrial metal demand concerns weighed on silver prices after Wednesday’s news showed that China’s July exports rose less than expected, a negative factor for global economic growth.
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.
