The dollar index (DXY00) today is up by +0.22%. Higher T-note yields today are supporting gains in the dollar. Also, weakness in the yen is giving the dollar a boost after the yen tumbled more than -1% today on dovish comments from BOJ Deputy Governor Uchida, who said the BOJ won’t raise interest rates further when financial markets are in turmoil. Strength in stocks today is limiting the upside in the dollar.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 71% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) today is down by -0.06%. Strength in the dollar today is weighing on the euro. The euro is also under pressure today on dovish comments from ECB Governing Council member Rehn, who said ECB rate cuts could continue if inflation slows. The euro found support after German June industrial production rose at the fastest pace in 16 months.
German June industrial production rose +1.4% m/m, stronger than expectations of +1.0% m/m and the largest increase in 16 months.
German trade news today was weaker than expected as June exports fell -3.4% m/m, weaker than expectations of -1.5% m/m and the biggest decline in 6 months. Also, June imports rose +0.3% m/m, weaker than expectations of +2.5% m/m.
ECB Governing Council member Rehn said the ECB may continue cutting interest rates if confidence in the slowing inflation trend continues.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) today is up sharply by +1.75%. The yen fell sharply against the dollar today after BOJ Deputy Governor Uchida said the BOJ won’t raise interest rates further if financial markets are unstable. Also, weaker-than-expected Japanese economic news weighed on the yen after Japan’s June leading index CI fell more than expected to a 14-month low. In addition, higher T-note yields today are undercutting the yen.
The Japan June leading index CI fell -2.6 to a 14-month low of 108.6, weaker than expectations of 108.8.
BOJ Deputy Governor Uchida said, "I believe that the BOJ needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile."
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +35% for the October 30-31 meeting.
December gold (GCZ24) today is up +7.70 (+0.32%), and September silver (SIU24) is down -0.241 (-0.89%). Precious metals today are mixed. Dovish comments today from GOJ Deputy Governor Uchida boosted demand for precious metals as a store of value when he said the BOJ will refrain from raising interest rates further if financial markets are in turmoil. Also, fund demand for gold is supportive for prices after long gold positions in ETFs rose to a 5-1/2 month high on Tuesday. In addition, precious metals prices have underlying support from geopolitical risks in the Middle East after Iran’s leader Ayatollah Ali Khamenei ordered a strike on Israel in response to the assassination of a Hamas political leader in Tehran.
Today’s stronger dollar is undercutting precious metals prices. Also, higher global bond yields today are negative for precious metals. In addition, strength in stocks today has reduced the safe-haven demand for precious metals. Industrial metal demand concerns are weighing on silver prices after today’s news that China’s July exports rose less than expected, a negative factor for global economic growth.
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