The dollar index (DXY00) on Monday rose by +0.36% to a 1-week high. The dollar moved higher Monday as EUR/USD retreated after comments from Ukrainian President Zelenskiy dampened optimism of any quick resolution to the Russian-Ukrainian war when he rejected any talk of Ukraine ceding territory to Russia. Also, short-covering ahead of the US CPI report for July on Tuesday gave the dollar a boost. Gains in the dollar were limited after Fed Governor Michelle Bowman said she favors three Fed rate cuts this year.
Gains in the dollar are also limited by the negative carryover from last Thursday, when President Trump nominated Stephen Miran to be a temporary replacement for Adrianna Kugler as Fed Governor. Miran is currently chairman of the Council of Economic Advisors and is seen as dovish and supporting President Trump's calls for lower interest rates.
On Saturday, Fed Governor Michelle Bowman said she supports cutting interest rates at the FOMC's next meeting in September and that she favors three rate cuts this year to "help avoid a further unnecessary erosion in labor market conditions and reduce the chance that the committee will need to implement a larger policy correction should the labor market deteriorate further."
In recent tariff news, CNBC on Monday reported that President Trump will extend the tariff truce with China, which was to expire on Tuesday, for another 90 days. Last Wednesday, President Trump announced that he will impose a 100% tariff on semiconductor imports. Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US. However, the US will levy a separate tax on imports of electronic products that employ semiconductors. Also, President Trump announced last Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India's purchases of Russian oil. Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 88% at the September 16-17 FOMC meeting and 63% at the following meeting on October 28-29.
EUR/USD (^EURUSD) Monday fell by -0.27%. Reduced optimism that this Friday's summit between Presidents Trump and Putin would lead to an imminent end to the Russian-Ukrainian war is weighing on the euro after Ukrainian President rejected any plans for Ukraine to cede territory to Russia. The euro is also continuing to struggle due to concerns that President Trump's tariff policies will curb economic growth in the Eurozone.
Swaps are pricing in a 6% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) Monday rose by +0.28%. The yen fell to a 1-week low against the dollar on Monday due to concern that US tariff policies will harm the Japanese economy. However, the decline in T-note yields on Monday limited losses in the yen. Trading activity was well below average on Monday, with financial markets in Japan closed for the Mountain Day holiday.
December gold (GCZ25) on Monday closed down -86.60 (-2.48%), and September silver (SIU25) closed down -0.755 (-1.96%). Precious metals on Monday settled sharply lower, with gold falling to a 1-week low. Monday's rally in the dollar index to a 1-week high was negative for metals. Also, gold prices plunged when President Trump said Monday that imports of gold will not face tariffs, easing supply fears.
On the positive side, comments from Fed Governor Michelle Bowman boosted demand for precious metals as a store of value when she expressed support for a Fed rate cut at next month's FOMC meeting and favors three Fed interest rate cuts this year. Precious metals still 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.
Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a two-year high last Friday, and silver holdings in ETFs reached a three-year high on the same day.
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.
