The dollar index (DXY00) today rose to a 2-week high and is up +0.09%. Weakness in stocks today has prompted some liquidity demand for the dollar. However, gains in the dollar are limited by today’s weaker-than-expected US ISM manufacturing and construction spending reports.
The US Aug ISM manufacturing index rose +0.4 to 47.2, weaker than expectations of 47.5. The Aug ISM price paid sub-index unexpectedly rose +1.1 to 54.0 versus expectations of a decline to 52.0, which was hawkish for Fed policy.
US July construction spending unexpectedly fell -0.3% m/m, weaker than expectations of a +0.1% m/m increase and the biggest decline in 1-3/4 years.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 41% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) today is down by -0.28% at a 2-week low. The stronger dollar today is weighing on the euro. Also, lower 10-year German bund yields today are undercutting the euro’s interest rate differentials.
The Eurozone Aug S&P manufacturing PMI was revised upward by +0.2 to 45.8 from the previously reported 45.6.
German May retail sales fell -1.1% y/y, weaker than expectations of -0.7% y/y.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 99% for the September 12 meeting.
USD/JPY (^USDJPY) today is down by -0.97%. The yen is climbing today based on hawkish comments from BOJ Governor Ueda, who said the BOJ will continue to raise interest rates if the economy and prices perform as expected. Gains in the yen accelerated today after weaker-than-expected US manufacturing news knocked T-note yields lower.
Japan Q2 capital spending rose +7.4% y/y, weaker than expectations of +10.0% y/y. However, Q2 capital spending ex-software rose +9.1% y/y, stronger than expectations of +8.3% 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 +14% for the October 30-31 meeting.
December gold (GCZ24) today is down -15.9 (-0.63%), and December silver (SIZ24) is down -0.943 (-3.2%). Precious metals today are under pressure, with gold falling to a 1-week low and silver falling to a 2-week low. Today’s rally in the dollar index to a 2-week high is bearish for metals prices. Also, hawkish comments from BOJ Governor Ueda weighed on precious metals when he said that the BOJ will continue to raise interest rates if the economy and prices perform as expected. Silver prices have carryover weakness from a -3% fall in copper prices after Chinese manufacturing activity in August contracted by the most in 6 months and the US Aug ISM manufacturing index rose less than expected, negative factors for industrial metals demand.
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