The dollar index (DXY00) Friday rose by +0.22%. Positive trade news is bullish for the dollar as the US moves closer to trade deals with China and other trading partners. The dollar also found support after the US May core PCE price index, the Fed's preferred gauge of underlying inflation, rose more than expected, a hawkish factor for Fed policy. In addition, an upward revision to the University of Michigan's US June consumer sentiment index is supportive of the dollar. The dollar raced to its high Friday afternoon when President Trump said he was ending all trade discussions with Canada and threatened new tariffs on the country after it moved to implement a digital services tax.
Gains in the dollar were limited from Friday's weaker-than-expected US May personal spending and income reports. Also, dovish comments from Minneapolis Fed President Kashkari weighed on the dollar when he said he sees two 25 bp Fed rate cuts this year.
US May personal spending unexpectedly fell -0.1% m/m, weaker than expectations of a +0.1% m/m increase. May personal income unexpectedly fell -0.5% m/m, weaker than expectations of +0.3% m/m and the biggest decline in more than 3-1/2 years.
The US May core PCE price index, the Fed's preferred gauge of underlying inflation, rose +0.2% m/m and +2.7% y/y, stronger than expectations of +0.1% m/m and +2.6% y/y.
The University of Michigan US Jun consumer sentiment index was revised upward by +0.2 to 60.7, stronger than expectations of no change at 60.5.
The University of Michigan US Jun 1-year inflation expectations were unexpectedly revised lower to 5.0%, weaker than expectations of an upward revision to 5.2%. The 5-10 year inflation expectations were revised downward to 4.0%, weaker than expectations of no change at 4.1%.
Minneapolis Fed President Kashkari said he sees two 25-bp Fed rate cuts this year, with the first potentially in September, but warned that tariffs could have a delayed impact on inflation and that policymakers should remain flexible.
US Commerce Secretary Lutnick said that the US and China had finalized a trade understanding reached last month in Geneva, including a commitment from China to deliver rare earth materials. China's Commerce Ministry also confirmed the agreement and stated that it will review and approve eligible applications for the export of controlled items, and the US will cancel the restrictive measures taken against China. In addition, Commerce Secretary Lutnick said the White House has imminent plans to reach agreements with a set of 10 major trading partners ahead of a July 9 deadline for reciprocal tariffs. Meanwhile, the Treasury Department announced a deal with G-7 countries that will exclude US companies from some taxes imposed by other countries in exchange for removing the "revenge tax" proposal from President Trump's tax bill.
The markets are discounting a 19% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) Friday rose by +0.03% and posted a new 3-3/4 year high. The euro moved higher Friday from the stronger-than-expected French Jun CPI report, which is hawkish for ECB policy. Also, higher German bund yields have strengthened the euro's interest rate differentials after the 10-year German bund yield rose to a 1-week high Friday at 2.606%.
Gains in the euro were limited on Friday after the Eurozone's June economic confidence survey unexpectedly declined and after the dollar strengthened when President Trump announced he was ending all trade discussions with Canada.
The Eurozone Jun economic confidence survey unexpectedly fell -0.8 to 94.0, weaker than expectations of unchanged at 94.8.
France Jun CPI (EU harmonized) rose +0.8% y/y, stronger than expectations of +0.7% y/y. Spain Jun CPI (EU harmonized) rose +2.2% y/y, right on expectations.
Swaps are pricing in a 7% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Friday rose by +0.21%. Weaker-than-expected Japanese economic news weighed on the yen Friday, following the unexpected decline in May retail sales and the less-than-expected rise in the Jun Tokyo CPI, which are dovish factors for BOJ policy. Also, Friday's rally in the Nikkei stock index to a 5-month high has reduced safe-haven demand for the yen. In addition, higher T-note yields on Friday were bearish for the yen.
Japan May retail sales unexpectedly fell -0.2% m/m, weaker than expectations of a +0.3% m/m increase.
Japan Jun Tokyo CPI rose +3.1% y/y, weaker than expectations of +3.3% y/y. Jun Tokyo CPI ex-fresh food and energy rose +3.1% y/y, weaker than expectations of +3.3% y/y.
August gold (GCQ25) Friday closed down -60.40 (-1.80%), and July silver (SIN25) closed down by -0.554 (-1.51%). Precious metals settled sharply lower on Friday, with gold falling to a 4-week low. Friday's stronger dollar and higher global bond yields undercut metals prices. Also, positive trade news on Friday sparked a rally in stocks that curbed safe-haven demand for precious metals as the US moves closer to trade deals with China and other trading partners. Precious metals remained lower after Friday's news showed that the US May core PCE price index, the Fed's preferred gauge of underlying inflation, rose more than expected, a hawkish factor for Fed policy.
However, precious metals recovered from their worst levels on Friday after President Trump announced he was ending all trade talks with Canada and threatened new tariffs on the country following its implementation of a digital services tax on the US. Also, Friday's economic news, which showed an unexpected decline in US May personal spending and personal income, is dovish for Fed policy and supportive for precious metals. In addition, dovish comments from Minneapolis Fed President Kashkari on Friday were positive for gold demand as a store of value, as he stated that he sees two 25-bp Fed rate cuts this year. Fund buying of gold continues to support prices after gold holdings in ETFs rose to a 1-3/4 year high Thursday.
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.
