The dollar index (DXY00) Monday fell by -0.31% and posted a 2-week low. Lower T-note yields Monday weighed on the dollar. Also, an increase in Japanese inflation expectations to an 8-1/2 year high pushed up the yen to a 2-1/2 week high against the dollar. In addition, weaker-than-expected U.S. economic news on May wholesale sales and May consumer credit was negative for the dollar.
Monday’s U.S. economic news was bearish for the dollar. May wholesale trade sales unexpectedly fell -0.2% m/m, weaker than expectations of +0.3% m/m. Also, May consumer credit rose +$7.24 billion, weaker than expectations of +$20.00 billion and the smallest increase in 2-1/2 years.
Hawkish Fed comments Monday were supportive of the dollar. San Francisco Fed President Daly said the risk of doing too little on rates outweighs doing too much, and with inflation printing too high, the Fed needs to keep raising interest rates. Also, Cleveland Fed President Mester said, "In order to ensure that inflation is on a sustainable and timely path back to 2%, my view is that the funds rate will need to move up somewhat further from its current level and then hold there for a while as we accumulate more information on how the economy is evolving."
EUR/USD (^EURUSD) Monday rose +0.29% and posted a 2-week high. Dollar weakness Monday supported modest gains in the euro. Also, the 10-year German bund yield jumped to a 4-month high Monday of 2.679%, strengthening the euro’s interest rate differentials. A bearish factor for EUR/USD was Monday’s economic news that showed the Eurozone Jul Sentix investor confidence index fell more than expected to an 8-month low.
The Eurozone Jul Sentix investor confidence index fell -5.5 to an 8-month low of -22.5, weaker than expectations of -17.9.
USD/JPY (^USDJPY) on Monday fell -0.65%. The yen on Monday added to last Friday’s gains and posted a 2-1/2 week high against the dollar. A decline in T-note yields Monday was bullish for the yen. Also, an increase in Japanese inflation expectations pushed bond yields higher and boosted the yen after the Japan 10-year breakeven inflation rate climbed to an 8-1/2 year high of 1.16%. The rise in inflation expectations pushed the 10-year JGB bond yield Monday up to a 2-1/2 month high of 0.468%, benefiting the yen.
On the negative side of the yen was Monday’s news that showed the Japan Jun Eco watchers survey outlook fell -1.6 to a 4-month low of 52.8, weaker than expectations of 54.2.
August gold (GCQ3) Monday closed down -1.5 (-0.08%), and Sep silver (SIU23) closed up +0.059 (+0.26%). Precious metals prices Monday settled mixed. A decline in the dollar index on Monday to a 2-week low was bullish for metals prices. Also, an increase in inflation expectations has boosted demand for precious metals as an inflation hedge after the 10-year U.S. breakeven inflation rate Monday rose to a 1-1/2 month high at 2.289%, and the Japan 10-year breakeven inflation rate climbed to an 8-1/2 year high of 1.16%. Gold prices gave up early gains Monday and posted modest losses due to hawkish comments from San Francisco Fed President Daly and Cleveland Fed President Mester, who called for additional Fed rate hikes. Also, ongoing fund liquidation of gold is bearish for prices as holdings in gold ETFs fell to a 3-3/4 month low last Friday.
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.
