The dollar index (DXY00) Tuesday tumbled to a 13-month low and finished down by -0.27%. Recent Fed comments and Fed-friendly economic news seemed to confirm that the Fed will begin cutting interest rates next month, a negative factor for the dollar. Also, strength in the British pound (^GBPUSD) weighed on the dollar after GBP/USD rallied to a 2-1/3 year high Tuesday.
Higher T-note yields Tuesday limited losses in the dollar. Also, heightened geopolitical risks in the Middle East supported safe-haven demand for the dollar. Tuesday’s US economic news was mixed for the dollar.
June SP CoreLogic US composite-20 home price index growth eased to a 6-month low of +6.47% y/y from +6.88% y/y in May but was stronger than expectations of +6.14% y/y.
The Conference Board’s Aug US consumer confidence index rose +1.4 to a 6-month high of 103.3, stronger than expectations of 100.7.
The US Aug Richmond Fed manufacturing survey of current conditions index unexpectedly fell -2 to a 4-1/4 year low of -19, weaker than expectations of an increase to -14.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 36% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Tuesday rose by +0.19%. Dollar weakness Tuesday supported mild gains in the euro. The euro also found support from Tuesday’s rise in the 10-year German bund yield to a 3-1/2 week high. Gains in the euro were limited after the German Sep GfK consumer confidence index unexpectedly fell to a 4-month low. Also, dovish ECB comments on Tuesday undercut the euro after ECB Governing Council members Centeno and Knot said they favored easing of ECB monetary policy.
The German Sep GfK consumer confidence index unexpectedly fell -3.4 to a 4-month low of -22.0, weaker than expectations of an increase to -18.2.
ECB Governing Council member Centeno said the direction of monetary policy in the Eurozone seems "relatively clear" given indicators such as lower inflation.
ECB Governing Council member Knot said he favors gradual monetary easing so long as inflation stays on track to return to the ECB's 2% goal next year.
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 -0.33%. The yen moved moderately higher Tuesday and is just below Monday’s 3-week high against the dollar. Central bank policy divergence favors the yen as the BOJ is expected to keep raising interest rates while the Fed and ECB cut rates. The yen also has safe-haven support from geopolitical tensions in the Middle East.
Japan's July PPI services prices eased to +2.8% y/y from +3.1% y/y in June, weaker than expectations of +2.9% y/y.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and at +8% for the October 30-31 meeting.
December gold (GCZ24) Tuesday closed down -2.3 (-0.09%), and September silver (SIU24) closed down -0.027 (-0.09%). Precious metals Tuesday posted modest losses. Higher global bond yields Tuesday undercut precious metals. However, a weaker dollar Tuesday limited losses in metals. Also, dovish comments Tuesday from ECB Governing Council members Centeno and Knot supported demand for gold as a store of value when they said they favored ECB interest rate cuts. In addition, safe-haven demand for precious metals remains strong after the escalation of Middle East tensions when Israel on Sunday launched airstrikes in southern Lebanon.
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.
