The dollar index (DXY00) on Thursday fell by -0.80% and posted a 1-month low. Central bank divergence weighed on the dollar Thursday after the ECB raised interest rates by +25 bp and signaled another rate hike in July, whereas the Fed on Wednesday paused its rate hikes. Lower T-note yields and stronger stocks Thursday also undercut the dollar.
U.S. weekly initial unemployment claims were unchanged at 262,000, showing a weaker labor market than expectations of a decline to 245,000.
U.S. May retail sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.2% m/m decline.
The U.S. May import price index ex-petroleum fell -0.2% m/m, a bigger decline than expectations of -0.1% m/m.
The U.S. Jun Philadelphia Fed business outlook survey fell -3.3 to -13.7, stronger than expectations of -14.0.
The U.S. Jun Empire manufacturing survey general business conditions rose +38.4 to 6.6, stronger than expectations of -15.1.
U.S. May manufacturing production unexpectedly rose +0.1% m/m, stronger than expectations of a -0.1% m/m decline.
EUR/USD (^EURUSD) on Thursday rose by +1.11% and posted a 1-month high. The euro rallied Thursday after the ECB raised interest rates by +25 bp, and ECB President Lagarde said another +25 bp rate hike by the ECB in July is "very likely." EUR/USD also garnered support after the 10-year German bund yield climbed to a 2-1/2 week high, strengthening the euro’s interest rate differentials.
The ECB, as expected, raised its main refinancing rate by +25 bp to 4.00% and said, "Future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary." The ECB also said it would halt reinvestment in its 3.2 trillion euro Asset Purchase Program from next month, which means the ECB will be draining liquidity as securities mature and its balance sheet declines.
The ECB cut its 2023 Eurozone GDP forecast to +0.9% from +1.0% and raised its 2023 inflation forecast to +5.4% from a prior forecast of +5.3%.
ECB President Lagarde said with projections showing inflation set to "remain too high for too long," another +25 bp rate hike by the ECB in July is "very likely."
USD/JPY (^USDJPY) on Thursday rose by +0.12%. The yen Thursday fell to a 7-1/2 month low against the dollar on expectations the BOJ at Friday’s policy meeting will maintain stimulus measures and record low-interest rates. The yen recovered from its worst levels after Japan Chief Cabinet Secretary Matsuno said that excessive movements in foreign-exchange markets aren’t desirable. The yen also garnered support Thursday from a decline in T-note yields.
Better-than-expected Japanese economic news Thursday was supportive of the yen. Apr core machine orders rose +5.5% m/m, stronger than expectations of +3.0% m/m. Also, the Apr tertiary industry index rose +1.2% m/m, stronger than expectations of +0.4% m/m. Japanese trade data was better than expected after May exports unexpectedly rose +0.6% y/y, stronger than expectations of a -1.2% y/y decline. Also, May imports fell -9.9% y/y, the biggest drop in 2-1/4 years but a smaller decline than expectations of -10.3% y/y.
August gold (GCQ3) on Thursday closed up +1.80 (+0.09%), and July silver (SIN23) closed down -0.158 (-0.66%). Precious metals Thursday settled mixed, with silver dropping to a 2-week low. Gold prices recovered from a 3-month low Thursday and posted modest gains after a fall in the dollar index to a 1-month low sparked short covering in gold. Precious posted Thursday opened lower on hawkish central banks after the Fed on Wednesday signaled two more 25 bp rate hikes this year, and the ECB Thursday raised interest rates by +25 bp and signaled another rate hike in July. Chinese industrial demand concerns weighed on silver prices after China's May industrial production eased to +3.5% y/y from +5.6% y/y in April.
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.
