The dollar index (DXY00) Monday recovered from a 5-week low and finished up by +0.12%. Higher T-note yields on Monday supported the dollar. The dollar also has support from increased safe-haven demand after the attempted assassination of former president Donald Trump on Saturday. Monday’s strength in stocks reduced liquidity demand for the dollar and limited gains in the dollar. Also, dovish comments from Fed Chair Powell weighed on the dollar.
Monday’s US economic news supported the dollar after the July Empire manufacturing survey of general business conditions index fell -0.6 to -6.6, stronger than expectations of -7.6.
Comments from Fed Chair Powell on Monday were slightly dovish and bearish for the dollar when he said Q2 US economic data has provided policymakers greater confidence that inflation is headed down to the Fed's 2% goal, possibly paving the way for near-term interest rate cuts.
The markets are discounting the chances for a -25 bp rate cut at 7% for the July 30-31 FOMC meeting and 100% for the following meeting on Sep 17-18.
EUR/USD (^EURUSD) Monday fell back from a 3-3/4 month high and finished down by -0.06%. A recovery in the dollar on Monday weighed on the euro after the dollar index rebounded from a 5-week low and moved higher. The euro on Monday initially moved higher on economic news that showed Eurozone May industrial production fell less than expected.
Eurozone May industrial production fell -0.6% m/m, the biggest decline in 4 months but better than expectations of -0.7% m/m.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 4% for the July 18 meeting and 82% for the September 12 meeting.
USD/JPY (^USDJPY) Monday rose by +0.04%. The yen fell back from a 4-week high against the dollar and posed modest losses as higher T-note yields pressured the yen. The yen Monday initially moved higher on concern that any additional weakness in the yen will prompt Japanese authorities to intervene again in the forex market in support of the yen following last Thursday’s intervention.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 49% for the July 31 meeting and 28% for the September 20 meeting.
August gold (GCQ24) Monday closed up +8.2 (+0.34%), and September silver (SIU24) closed down -0.226 (-0.73%). Precious metals prices on Monday settled mixed. Saturday’s attempted assassination of former president Trump sparked safe-haven buying of precious metals. Also, comments Monday from Fed Chair Powell signaled the Fed may be closer to cutting interest rates, a bullish factor for precious metals.
Gold has support from fund buying after long gold holdings in ETFs rose to a 3-month high last Friday. In addition, gold has support as an inflation hedge after the chances of former president Trump winning the election in November increased, which could boost inflation if he pursues new tax cuts and stimulative fiscal policies.
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