The dollar index (DXY00) today is up by +0.30%. The dollar recovered from overnight losses and climbed to a 1.5-week high due to stronger T-note yields. The 10-year T-note yield rose to a 2-week high today at 4.43%, which strengthened the dollar's interest rate differentials. Weakness in the yen is also benefiting the dollar as the yen tumbled to a 2-week low against the dollar today. Gains in the dollar are limited as stocks rebounded after President Trump late Monday signaled that he is open to further negotiations on tariffs.
Late Monday, President Trump said he's still open to additional negotiations and that the August 1 deadline for higher tariff rates was "not 100% firm," adding, "we're not going to be unfair" and would look favorably on countries continuing to offer additional concessions.
The markets are discounting a 5% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.15% and posted a new 1-week low due to a stronger dollar. Also, some weaker-than-expected German trade news is weighing on the euro. The euro recovered some of its losses on optimism about a trade deal between the US and European Union (EU) after a Politico report said the US offered a deal to the EU that would keep the 10% baseline tariffs, with exemptions for sensitive sectors beyond August 1, while a permanent deal is worked out.
German trade news was weaker than expected after May exports fell by 1.4% m/m, weaker than expectations of -0.5% m/m. Also, May imports fell by 3.8% m/m, which was weaker than expectations of -1.7% m/m and the biggest decline in a year.
Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) today is up by +0.57%. The yen added to Monday's losses today and fell to a 2-week low against the dollar. Concerns over fiscal deterioration in Japan are weighing on the yen ahead of the upper house election in Japan on July 20. Japan's ruling Liberal Democratic Party is promising cash handouts to voters while opposition lawmakers are advocating lower taxes. Higher T-note yields today are also weighing on the yen.
The Japan Jun eco watchers outlook survey rose +1.1 to a 4-month high of 45.9, stronger than expectations of 45.3.
August gold (GCQ25) today is down -27.40 (-0.82%), and September silver (SIU25) is down -0.264 (-0.72%). Precious metals today are under pressure from a stronger dollar after the dollar index climbed to a 1.5-week high. Also, higher global bond yields today are bearish for precious metals. In addition, comments from President Trump that he is open to additional tariff negotiations eased trade tensions slightly and curbed the safe-haven demand for precious metals.
Rising inflation expectations are supportive of gold demand as an inflation hedge and are limiting losses after the US 10-year breakeven inflation rate rose to a 6-week high today. Also, central bank buying of gold is supporting prices after the People's Bank of China (PBOC) purchased 70,000 MT of gold bullion in June, the eighth consecutive month the PBOC has added gold to its reserves.
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.
