Dollar Gains on Risk Aversion and Weak Stocks

The dollar index (DXY00) on Friday rose by +0.20%.  The dollar climbed Friday after a global IT outage prompted risk aversion in asset markets and sparked some safe-haven buying of the dollar. Also, higher T-note yields Friday were bullish for the dollar.  Gains in the dollar accelerated Friday after the S&P 500 dropped to a 2-1/2 week low, which sparked some liquidity demand for the dollar. 

The markets are discounting the chances for a -25 bp rate cut at 5% for the July 30-31 FOMC meeting and 99% for the following meeting on Sep 17-18.

EUR/USD (^EURUSD) on Friday fell by -0.16%.  The euro on Friday posted moderate losses due to a stronger dollar.  Also, an easing of Eurozone price pressures was dovish for ECB policy and bearish for the euro after the German producer prices in June contracted year-over-year for the twelfth consecutive month.  In addition, dovish comments from ECB Governing Council member Simkus weighed on the euro.

The German June PPI fell -1.6% y/y, right on expectations, and the twelfth consecutive month that producer prices have fallen year-over-year.

ECB Governing Council member Simkus said, "If there are no surprises or black swans and inflation converges as expected, further monetary-policy easing will undoubtedly be on the table in the next ECB meetings."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 78% for the September 12 meeting.

USD/JPY (^USDJPY) on Friday rose by +0.09%.  The yen on Friday was under pressure from higher T-note yields.  Also, the action by Japan's Cabinet Office to cut its Japan 2024 GDP projection was negative for the yen.  However, losses in the yen were limited after Japan's June national CPI rose +2.8% y/y, above the BOJ’s 2% target, which is hawkish for BOJ policy.

Japan's Cabinet Office cut its Japan 2024 GDP projection to 0.9% from a previous estimate of 1.3% and raised its 2024 inflation estimate to 2.8% from 2.5%.

Japan's June national CPI rose +2.8% y/y, weaker than expectations of +2.9% y/y.  Japan’s June national CPI ex-fresh food and energy rose +2.2% y/y, right on expectations.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 46% for the July 31 meeting and 54% for the September 20 meeting.

August gold (GCQ24) Friday closed down -57.30 (-2.33%), and September silver (SIU24) closed down -0.925 (-3.06%).  Precious metals prices settled sharply lower on Friday, with silver posting a 3-week low.  A stronger dollar Friday and higher global bond yields sparked long liquidation in precious metals.  Silver prices were also undercut Friday after Japan's Cabinet Office cut its Japan 2024 GDP estimate, a bearish factor for industrial metals demand.  In addition, negative carryover from Friday’s slump in copper prices to a 3-1/4 month low weighed on silver prices.

Gold has support on increased demand as an inflation hedge after Japan's Cabinet Office raised its Japan 2024 inflation estimate to +2.8% from +2.5% and after the US 10-year breakeven inflation rate Friday climbed to a 2-week high.  Also, continued fund buying of gold supports gold prices after long gold holdings in ETFs rose to a 3-1/2 month high on Thursday.

• Dollar Sees Support from Safe-Haven after a Global IT Outage
• Dollar Climbs as Lagarde Comments Hammer the Euro
• Dollar Firms on Higher T-Note Yields and Euro Weakness
• Dollar Tumbles on Yen Strength and Dovish Beige Book

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.