Dollar Slightly Lower as T-Note Yields Decline

The dollar index (DXY00) today is down by -0.05%.  The dollar today is slightly lower, pressured by a decline in T-note yields.  The dollar extended its losses after Fed Chair Powell said prices now show signs of resuming their disinflation trend.  Losses in the dollar are limited after the US May Jolt job openings unexpectedly increased, a sign of strength in the labor market that is hawkish for Fed policy.  Also, weakness in the yen supported the dollar after the yen tumbled to a new 37-year low against the dollar today.

The US May JOLTS job openings unexpectedly rose +221,000 to 8.140 million, showing a stronger labor market than expectations of a decline to 7.946 million.

Fed Chair Powell said prices now show signs of resuming their disinflation trend, and the Fed can "take its time" with interest rate cuts with a strong economy and a job market.

The markets are discounting the chances for a -25 bp rate cut at 9% for the July 30-31 FOMC meeting and 66% for the following meeting on Sep 17-18.

EUR/USD (^EURUSD) today is down by -0.09%.  The euro gave up overnight gains and turned slightly lower as political uncertainty in France remains high ahead of the second round of parliamentary elections this Sunday.  Today, the euro initially opened higher after ECB Governing Council member Simkus said the ECB wasn't in a rush to lower borrowing costs.  Also, today’s report on Eurozone Jun CPI showed core prices remain sticky, a hawkish factor for ECB policy. 

The Eurozone Jun CPI eased to +2.5% y/y from +2.6% y/y in May, right on expectations.  However, Jun core CPI rose +2.9% y/y, unchanged from May and stronger than expectations of a decline to +2.8% y/y.

ECB Governing Council member Simkus said core inflation is the "most important" indicator that will sway the ECB into action and that the ECB isn't in a rush to lower borrowing costs and is looking to September and the months beyond for more potential interest rate cuts.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 63% for the September 12 meeting.

USD/JPY (^USDJPY) today is up by +0.07%.  The yen today dropped to a new 37-year low against the dollar. The yen remains under pressure with Japanese government bond yields well below those of other G-7 countries.  Losses in the yen are limited by concerns that Japanese authorities could intervene in the forex market at any time to support the yen when Finance Minister Suzuki said he’s watching currency moves “closely.” Today’s decline in T-note yields is also supportive of the yen.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 59% for the July 31 meeting and 35% for the September 20 meeting.

August gold (GCQ4) today is up +2.20 (+0.09%), and September silver (SIU24) is up +0.427 (+1.44%).  Precious metals today are higher, with silver climbing to a 1-week high.  A weaker dollar today is supportive of precious metals.  Also, today’s decline in global bond yields is bullish for precious metals.  In addition, ongoing Middle East tensions are boosting the safe-haven demand for precious metals.  Finally, political uncertainty in France supports safe-haven demand for precious metals ahead of the second round of France’s parliamentary elections this Sunday.  Silver has carryover support from today’s rally in copper prices to a 1-week high.

Hawkish comments Monday night from ECB President Lagarde undercut gold prices when she said that the ECB doesn’t yet have sufficient evidence that inflation threats have passed, bolstering expectations the ECB will delay further interest rate cuts. Gold prices were undercut today after the US May JOLTS job openings unexpectedly increased.  Eurozone Jun core CPI was unchanged from May at +2.9% y/y, hawkish factors for central bank policies.

• Stocks Slip on Carryover Weakness in European Stocks
• Dollar Recovers Early Losses on Higher T-Note Yields
• Stocks Waver on Higher Bond Yields and Weak US Economic News
• Weak US Economic News and Euro Strength Weighs on the Dollar

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