The dollar index (DXY00) on Friday rose by +0.30%. The dollar rose Friday on comments made late Thursday from President Trump that firing Fed Chair Powell wasn’t necessary, easing concerns around the Fed’s independence that could spark foreign investors to shun dollar assets. On the negative side was Friday’s report on US Jun capital goods new orders nondefense ex-aircraft & parts that unexpectedly declined. Also, Friday’s rally in the S&P 500 to a new all-time high curbed liquidity demand for the dollar.
US Jun capital goods new orders nondefense ex-aircraft & parts unexpectedly fell -0.7% m/m, weaker than expectations of a +0.1% m/m increase.
President Trump downplayed his clash with Fed Chair Powell, stating that there was “no tension” between them and that he simply wants to see interest rates lowered.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and 64% at the following meeting on September 16-17.
EUR/USD (^EURUSD) Friday fell by -0.04%. The euro posted modest losses on Friday due to a stronger dollar. However, losses in the euro were limited as Friday’s Eurozone economic news was supportive of the euro. The Eurozone June M3 money supply rose less than expected, and the German July IFO business confidence index rose to a 14-month high. Also, hawkish ECB comments were positive for the euro after ECB Governing Council member Kazaks said he saw little reason to lower interest rates further, and ECB Governing Council member and Bundesbank President Nagel stated that a steady monetary policy from the ECB is appropriate.
Eurozone Jun M3 money supply rose +.3% y/y, weaker than expectations of +3.7% y/y and the slowest pace of increase in 9 months.
The German Jul IFO business confidence index rose +0.2 to a 14-month high of 88.6, although weaker than expectations of 89.0.
ECB Governing Council member Kazaks said he saw little reason to lower interest rates further unless the economy suffers a major blow, and “There is value in the ECB holding interest rates at current levels and the time of no-brainer moves to hike or cut rates is over.”
ECB Governing Council member and Bundesbank President Nagel said a steady monetary policy from the ECB is appropriate because the inflation outlook has remained unchanged and the economic outlook has improved slightly.
Swaps are pricing in an 18% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) Friday rose by +0.38%. The yen is moving lower against the dollar today after Japan’s Jul Tokyo CPI rose less than expected and the May leading index CI was revised lower, dovish factors for BOJ policy. The yen recovered from its worst levels Friday after T-note yields fell from early highs and turned lower.
The yen continues to be undercut by concerns that the LDP’s loss of its majority in Japan’s upper house in Sunday’s elections may lead to fiscal deterioration in Japan’s government finances, as the government boosts spending and implements tax cuts.
On the positive side for the yen was a report from Bloomberg stating that BOJ officials see the possibility of another interest rate hike this year, following the US and Japan’s trade deal announcement this week.
Japan Jul Tokyo CPI rose +2.9% y/y, weaker than expectations of +3.0% y/y. Jul Tokyo CPI ex-fresh food and energy rose +3.1% y/y, right on expectations.
Japan Jun PPI services prices rose +3.2% y/y, right on expectations.
The Japan May leading index CI was revised downward to 104.8 from the previously reported 105.3.
August gold (GCQ25) Friday closed down -37.90 (-1.12%), and September silver (SIU25) closed down -0.859 (-2.19%). Precious metals retreated on Friday, with gold and silver prices falling to 1-week lows. Friday’s stronger dollar was bearish for metals prices. Also, comments late Thursday from President Trump reduced safe-haven demand for precious metals when he downplayed his clash with Fed Chair Powell, easing concerns about the Fed’s independence by stating that there was “no tension” with Powell. In addition, hawkish comments from the ECB today weighed on precious metals, as ECB Governing Council member Kazaks stated that he saw little reason to lower interest rates further, and ECB Governing Council member and Bundesbank President Nagel emphasized the need for a steady monetary policy from the ECB.
Precious metals continue to receive safe-haven support from geopolitical risks, including the conflicts in Ukraine and the Middle East. Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a two-year high on Thursday, and silver holdings in ETFs reached a three-year high on the same day.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
