The dollar index (DXY00) Monday rose +0.08%. The dollar rose slightly on the view the Fed will keep raising interest rates with the odds at 86% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The dollar fell back from its best levels Monday after the Jun ISM manufacturing index unexpectedly fell to a 3-year low.
The U.S. Jun ISM manufacturing index unexpectedly fell -0.9 to 46.0, weaker than expectations of an increase to 47.1 and the steepest pace of contraction in more than three years.
U.S. May construction spending rose +0.9% m/m, stronger than expectations of +0.6% m/m.
The markets are discounting the odds at 86% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which indicates that the market is discounting an overall rate hike of +33 bp through November from the current effective federal funds rate of 5.07%.
EUR/USD (^EURUSD) Monday rose +0.03%. The euro Monday recovered from early losses and posted modest gains on hawkish comments from ECB Governing Council member and Bundesbank President Nagel, who said ECB rate hikes are not yet finished. EUR/USD Monday initially moved lower after the Eurozone Jun S&P manufacturing PMI was revised downward to a 3-year low.
ECB Governing Council member and Bundesbank President Nagel said “upside risks to the price outlook dominate, and “the way I see it, we still have some ways to go” in raising interest rates.
The Eurozone Jun S&P manufacturing PMI was revised downward to 43.4 from the initially reported 43.6, the steepest pace of contraction in more than three years.
USD/JPY (^USDJPY) on Monday rose +0.28%. The yen Monday fell moderately and is just above last Friday’s 7-1/2 month low against the dollar on central bank divergence. The Fed and ECB continue to raise interest rates while the BOJ maintains QE and record-low interest rates. Also, higher T-note yields Monday weighed on the yen. Losses in the yen were limited due to an improvement in Japanese business confidence after the Q2 Tankan large manufacturing business conditions increased for the first time in the last seven quarters.
The Japan Q2 Tankan large manufacturing business conditions rose to 5, stronger than expectations of 3 and the first increase in seven quarters.
August gold (GCQ3) Monday closed up +0.1 (+0.01%), and Sep silver (SIU23) closed up +0.092 (+0.40%). Precious metals prices Monday posted modest gains. Gold prices saw some support from the unexpected decline in the June ISM manufacturing index, which may prompt the Fed to slow its interest rate increases. Silver prices also found support after the China Jun Caixin manufacturing PMI fell less than expected, a positive sign for industrial metals demand. A stronger dollar Monday limited the upside in metals prices along with higher T-note yields.
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.
