The dollar index (DXY00) today is down by -0.59%. The dollar came under pressure today following comments from Fed Governor Christopher Waller on Thursday evening, who stated that he supports a Fed interest rate cut at the July 29-30 FOMC meeting. Also, an easing of inflation expectations in today’s University of Michigan July inflation expectations report was dovish for Fed policy and bearish for the dollar. The strength in stocks today has also curbed liquidity demand for the dollar.
On the positive side for the dollar was today’s stronger-than-expected US housing starts and building permits reports. Also, the University of Michigan’s US July consumer sentiment index rose more than expected to a 5-month high, a bullish factor for the dollar.
US June housing starts rose +4.6% m/m to 1.321 million, stronger than expectations of 1.300 million. Also, Jun building permits, a proxy for future construction, unexpectedly rose +0.2% m/m to 1.397 million versus expectations of a -0.5% m/m decline to 1.387 million.
The University of Michigan’s US July consumer sentiment index rose +1.1 to a 5-month high of 61.8, stronger than expectations of 61.5.
The University of Michigan US July 1-year inflation expectations indicator fell to a 5-month low of +4.4%, better than expectations of no change at +5.0%. Also, the July 5-10 year inflation expectations indicator eased to a 5-month low of +3.6%, weaker than expectations of +3.9%.
Thursday evening, Fed Governor Christopher Waller said, “With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate. I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now.”
On the trade front, President Trump said late Wednesday that he intends to send a tariff letter to more than 150 countries notifying them their tariff rates could be 10% or 15%, effective August 1, and that the group was “not big countries who don’t do that much business with the US.”
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 5% at the July 29-30 FOMC meeting and 58% at the following meeting on September 16-17.
EUR/USD (^EURUSD) today is up by +0.47%. Dollar weakness today is supporting gains in the euro after Fed Governor Waller said he supports a Fed rate cut later this month. Today’s Eurozone economic news was negative for the euro after Eurozone May construction posted its biggest decline in 2.5 years and German June producer prices fell at the steepest pace in 9 months, dovish factors for EBC policy.
Eurozone May construction output fell -1.7% m/m, the biggest decline in nearly 2.5 years.
German June PPI fell -1.3% y/y, right on expectations and the steepest pace of decline in 9 months.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) today is down by -0.08%. The yen is moving higher against the dollar today after Japan’s June national CPI ex-fresh food and energy rose at the fastest pace in 17 months, a hawkish factor for BOJ policy. Also, lower T-note yields today are bullish for the yen.
However, gains in the yen are limited ahead of Sunday’s upper house election in Japan, where there is concern that Japanese Prime Minister Ishiba’s Liberal Democratic Party (LDP) could lose its majority. The promises by Japan’s ruling Liberal Democratic Party of cash handouts to voters and promises of lower taxes by the opposition have sparked concerns of fiscal deterioration, which are bearish for the yen.
Japan June national CPI rose +3.3% y/y, right on expectations. June national CPI ex-fresh food and energy rose +3.4% y/y, stronger than expectations of +3.3% y/y and the largest increase in 17 months.
August gold (GCQ25) today is up +18.50 (+0.55%), and September silver (SIU25) is up +0.342 (+0.89%). Precious metals are moving higher today due to a weaker dollar. Also, lower T-note yields today are bullish for precious metals. Dovish comments from Fed Governor Waller on Thursday evening boosted demand for precious metals as an inflation hedge, as he expressed support for a Fed interest rate cut at the July 29-30 FOMC meeting. Precious metals also received safe-haven support from global trade tensions, following President Trump’s announcement on Wednesday that he intends to send a tariff letter to more than 150 countries, notifying them that their tariff rates could be 10% or 15%, effective August 1.
Strength in stocks today is limiting gains in precious metals. Also, today’s stronger-than-expected US housing starts and building permits reports showed signs of economic strength that were hawkish for Fed policy and bearish for precious metals.
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. For more information please view the Barchart Disclosure Policy here.
