The dollar index (DXY00) on Monday rose by +0.82%. The dollar moved higher on Monday due to higher T-note yields. Also, weakness in stocks on Monday boosted some liquidity demand for the dollar. The dollar also found support after the US July new home sales report was better than expected. The dollar has some negative carryover from last Friday when Fed Chair Powell said downside risks to employment are rising and the shifting balance of risks may warrant adjusting monetary policy.
The dollar is also pressured on concerns over Fed independence after President Trump said last Friday that he would fire Fed Governor Lisa Cook if she didn't resign amid allegations of mortgage fraud.
The US Jul Chicago Fed national activity index fell -0.37 to -0.19, weaker than expectations of -0.11.
US Jul new home sales unexpectedly fell -0.6% m/m to 652,000 from an upwardly revised 656,000 in Jun (initially reported 627,000), still stronger than expectations of 630,000.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 82% at the September 16-17 FOMC meeting and at 51% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) on Monday fell by -0.95%. The euro retreated on Monday due to strength in the dollar. Also, doubts about an imminent end to the Russian-Ukrainian war are negative for the euro. The euro found some support after the German Aug IFO business climate survey rose more than expected to a 16-month high. Also, comments from ECB President Lagarde supported the euro when she said tariffs may only have a small effect on Europe's GDP.
The German Aug IFO business climate survey rose +0.4 to a 16-month high of 89.0, stronger than expectations of +0.2 to 88.8.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, as the US tries to broker a peace deal between the two countries. On Sunday, Russian Foreign Minister Lavrov said there was no meeting planned between the leaders of Russia and Ukraine and that there "needs to be an agenda first" before a meeting can take place. "This agenda is not ready at all." The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) on Monday rose by +0.62%. The yen slid against the dollar on Monday due to higher T-note yields. The yen also came under pressure after today's Japanese economic news showed the Jun leading index CI was revised lower. Losses in the yen were limited due to hawkish comments from BOJ Governor Uesda, who said he expects a tight labor market to keep upward pressure on wages.
The Japan Jun leading index CI was revised downward by -0.5 to 105.6 from the previously reported 106.1.
BOJ Governor Ueda said, "Barring a major negative demand shock, the labor market is expected to remain tight and continue to exert upward pressure on wages."
December gold (GCZ25) on Monday closed down -1.00 (-0.03%), and September silver (SIU25) closed down -0.342 (-0.86%). Precious metal prices settled lower on Monday due to a stronger dollar. Also, higher global government bond yields on Monday were bearish for precious metals. In addition, hawkish comments from BOJ Governor Ueda signal the BOJ may be close to raising interest rates again when he said, "the labor market is expected to remain tight and continue to exert upward pressure on wages."
Losses in gold were contained as rising inflation expectations boosted demand for gold as an inflation hedge after the 10-year breakeven inflation rate rose to a 3.5-week high on Monday. Precious metals continue to see safe-haven demand driven by US political uncertainty and concerns over Fed independence, after President Trump said last Friday he will fire Fed Governor Lisa Cook if she doesn't resign amid allegations of mortgage fraud. Gold also has safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East.
