The dollar index (DXY00) Tuesday fell by -0.55% and posted a 1-week low. The dollar moved lower Tuesday after T-note yields declined on the weaker-than-expected US July PPI report, which bolstered the chances for a Fed rate cut at the September FOMC meeting. Tuesday’s rally in stocks also reduced liquidity demand for the dollar. The dollar extended its losses Tuesday afternoon on dovish comments from Atlanta Fed President Bostic, who said he'll likely be ready to support Fed rate cuts "by the end of the year."
US July PPI final demand eased to +2.2% y/y from +2.7% y/y in June, a smaller increase than expectations of +2.3% y/y. Also, July PPI ex-food and energy eased to +2.4% y/y from +3.0% y/y in June, better than expectations of +2.6% y/y.
Atlanta Fed President Bostic said he'll likely be ready to support Fed rate cuts "by the end of the year," and he's looking for "a little more data" before supporting a rate cut as he wants to be sure the Fed will not have to change course once it begins cutting.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 60% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Tuesday climbed by +0.61% and posted a 1-week high. The weaker dollar Tuesday provided support to the euro. However, the euro was undercut after the German August ZEW investor confidence survey fell more than expected to a 7-month low.
The German Aug ZEW expectation of economic growth survey fell -22.6 to a 7-month low of 19.2, weaker than expectations of 34.0.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for the September 12 meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.39%. Japanese economic news Tuesday supported the yen after July machine tool orders rose for a third month, and after July PPI rose at the fastest pace in 11 months, a hawkish factor for BOJ policy. The yen extended its gains against the dollar Tuesday after T-note yields fell. However, Tuesday’s +3% surge in the Nikkei Stock Index to a 1-week high reduced safe-haven demand for the yen.
Japan's July machine tool orders rose +8.4% y/y, and the third consecutive month that orders increased.
Japan's July PPI rose +3.0% y/y, the largest increase in 11 months.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +10% for the October 30-31 meeting.
December gold (GCZ24) Tuesday closed up +3.80 (+0.15%), and September silver (SIU24) closed down -0.222 (-0.79%). Gold and silver prices on Tuesday settled mixed, with gold posting a 1-week high. Tuesday’s fall in the dollar index to a 1-week low supported metals prices. Also, lower global bond yields on Tuesday were bullish for precious metals prices. In addition, dovish comments from Atlanta Fed President Bostic boosted precious metals when he said he'll likely be ready to support Fed rate cuts "by the end of the year." Finally, safe-haven demand for precious metals continues as an attack by Iran on Israel may be imminent in retaliation for the recent assassination of a Hamas political leader in Tehran.
Tuesday's gains in precious metals prices were limited by the strength in equity markets that curbed some safe-haven demand for precious metals. Also, concern about China’s economy undercut the demand outlook for industrial metals and silver prices.
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.
