The dollar index (DXY00) on Monday added to last Friday’s losses and fell by -0.38%. The dollar moved lower Monday on negative carryover from last Friday’s weaker-than-expected US payroll and ISM manufacturing reports, which sent T-note yields lower and bolstered speculation that the Fed may cut interest rates as soon as next month.
Also, questions about the Fed’s credibility are weighing on the dollar after Fed Governor Adriana Kugler resigned last Friday, which could prompt President Trump to nominate a new governor who is more dovish and could undermine Fed Chair Powell’s influence. Strength in stocks on Monday has also reduced liquidity demand for the dollar.
US June factory orders fell -4.8% m/m, right on expectations and the biggest decline in more than 5 years. However, June factory orders ex-transportation rose +0.4% m/m, stronger than the expectations of +0.3% m/m and the largest increase in 7 months.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 90% at the September 16-17 FOMC meeting and 70% at the following meeting on October 28-29.
EUR/USD (^EURUSD) Monday fell by -0.15%. The euro moved lower Monday after the Eurozone Aug Sentix investor confidence index unexpectedly declined. Also, Monday’s fall in the 10-year German bund yield to a 1-month low has weakened the euro’s interest rate differentials. In addition, the euro is struggling due to concerns that President Trump’s tariff policies will curb economic growth in the Eurozone.
The Eurozone Aug Sentix investor confidence index unexpectedly fell -8.2 to -3.7, weaker than expectations of an increase to 6.9.
Swaps are pricing in a 15% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) today added to last Friday’s sharp losses and fell -0.31%. The yen rallied to a 1-week high against the dollar Monday after the Nikkei Stock index dropped to a 1.5-week low, which spurred some safe-haven buying of the yen. Also, Monday’s slide in T-note yields was supportive of the yen.
December gold (GCZ25) on Monday closed up +26.60 (+0.78%), and September silver (SIU25) closed up +0.399 (+1.08%). Precious metals settled higher on Monday, with gold prices rising to a 1-week high. Monday’s dollar weakness and lower global government bond yields were bullish for metals. Precious metals also have carryover support from last Friday’s weaker-than-expected US July payroll and July ISM manufacturing reports, which boosted speculation that the Fed may cut interest rates as soon as next month. The chance of a Fed interest rate cut at the September FOMC meeting has risen to 90% from 40% before the reports.
Precious metals prices also have safe-haven support on concerns that President Trump’s tariff policies will weigh on global economic growth prospects. Finally, precious metals continue to receive safe-haven support from geopolitical risks, including the conflicts in Ukraine and the Middle East.
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.
