The dollar index (DXY00) Monday fell by -0.56% and posted a 7-1/2 month low. The dollar came under pressure Monday on dovish comments from San Francisco Fed President Daly and Minneapolis Fed President Kashkari, who signaled they would be open to a Fed rate cut at the September FOMC meeting. Also, central bank divergence has boosted the yen to a 1-1/2 week high against the dollar Monday from expectations for the Fed to begin cutting interest rates next month while the BOJ is expected to keep raising rates. The dollar extended its losses Monday after US July leading indicators fell more than expected.
US July leading indicators fell -0.6% m/m, weaker than expectations of -0.4% m/m.
San Francisco Fed President Daly said recent US economic data has given the Fed "more confidence" that inflation is under control, and it is time to consider adjusting benchmark borrowing costs.
Minneapolis Fed President Kashkari signaled he would be open to a Fed rate cut at the September FOMC meeting when he said, "The balance of risks has shifted, so the debate about potentially cutting interest rates in September is an appropriate one to have."
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 24% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Monday rose by +0.52% and posted a 7-1/2 month high. Dovish Fed comments Monday weighed on the dollar and boosted the euro. Also, the prospects for the Fed to cut rates faster than the ECB has strengthened the euro’s interest rate differentials.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) on Monday fell by -0.70%. The yen climbed to a 1-1/2 week high against the dollar Monday on lower T-note yields and better-than-expected Japanese economic news. Also, central bank divergence is boosting the yen on expectations for the BOJ to keep raising interest rates while the Fed begins to cut interest rates.
Japan June core machine orders rose +2.1% m/m, stronger than expectations of +0.9% m/m.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +8% for the October 30-31 meeting.
December gold (GCZ24) Monday closed up +3.50 (+0.14%), and September silver (SIU24) closed up +0.455 (+1.58%). Precious metals Monday settled higher, with Dec gold posting a contract high and nearest-futures (Q24) posting an all-time high of $2,508.50 an ounce. Silver prices posted a 2-week high.
Monday’s slump in the dollar index to a 7-1/2 month low was bullish for metals. Also, dovish comments from San Francisco Fed President Daly and Minneapolis Fed President Kashkari supported precious metals prices as they signaled they were open to a Fed rate cut next month. In addition, safe-haven demand for precious metals remains strong on concern that Iran may yet attack Israel as retaliation for the recent assassination of a Hamas political leader in Tehran. Silver found support from Monday’s Japanese news that June core machine orders rose more than expected, a supportive factor for industrial metal demand. Strength in equity markets Monday curbed some safe-haven demand for precious 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.
