The dollar index (DXY00) on Wednesday fell by -0.05%. The dollar fell from a 1-week high on Wednesday and turned slightly lower on a decline in T-note yields. Also, political risks and concerns about Fed independence weighed on the dollar after President Trump called for Fed Governor Lisa Cook to resign amid a probe into two personal mortgages. FHFA Director Pulte wrote a letter to Attorney General Bondi suggesting Ms. Cook may have committed a criminal offense by allegedly falsifying bank documents and property records to acquire more favorable loan terms.
The dollar initially moved higher on Wednesday after EUR/USD fell to a 1-week low when ECB President Lagarde said she sees slower growth in the Eurozone. The weakness in stocks on Wednesday has also boosted some liquidity demand for the dollar. In addition, the dollar has support due to speculation that last week’s stronger-than-expected July PPI report could keep the Fed from cutting interest rates at next month’s FOMC meeting, as expectations for a -25 bp Fed rate cut in September fell to 84% area from 93% before the report.
Wednesday’s minutes of the July 29-30 FMC meeting were hawkish and supportive of the dollar. The minutes showed that most policymakers judged the upside risk to inflation as a greater risk than weaker employment, saying the labor market was “solid” but inflation remained “somewhat elevated.”
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 84% at the September 16-17 FOMC meeting and at 55% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) on Wednesday rose by +0.08%. The euro recovered from a 1-week low on Wednesday and posted modest gains after the dollar retreated when President Trump said Fed Governor Lisa Cook “must resign” now due to allegations of mortgage fraud.
The euro initially moved lower on Wednesday on comments from ECB President Lagarde, who said the Eurozone economy is likely to see slower growth this quarter, with questions over global trade remaining despite recent trade deals with the US reducing uncertainty.
President Trump is pushing for a summit between Presidents Putin and Zelenskiy soon, and European leaders are discussing a plan to send British and French troops to Ukraine as part of a peace agreement. 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 an 8% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) on Wednesday fell by -0.28%. The yen moved higher on Wednesday due to weakness in the dollar. Also, higher Japanese government bond yields have strengthened the yen’s interest rate differentials and boosted the yen after the 10-year JGB bond yield rose to a 16-year high on Wednesday of 1.621%. In addition, lower T-note yields on Wednesday were supportive of the yen. Wednesday’s Japanese economic news was mixed for the yen as Jun core machine orders unexpectedly increased, but July exports posted their largest decline in almost 4.5 years.
Japanese trade news was mixed as Jul exports fell -2.6% y/y, weaker than expectations of -2.1% y/y and the largest decline in almost 4.5 years. However, Jul imports fell -7.5% y/y, a smaller decline than expectations of -10.0% y/y.
Japan Jun core machine orders unexpectedly rose +3.0% m/m, stronger than expectations of a decline of -0.5% m/m.
December gold (GCZ25) on Wednesday closed up +29.80 (+0.89%), and September silver (SIU25) closed up +0.441 (+1.18%). Precious metal prices recovered from early losses on Wednesday and moved higher due to a weaker dollar and lower T-note yields. Also, an increase in US political uncertainty and concerns about Fed independence boosted safe-haven demand for precious metals after President Trump called for Fed Governor Lisa Cook to resign amid allegations of mortgage fraud. Gold continues to have safe-haven support related to US tariffs and 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 2-year high last Friday, and silver holdings in ETFs reached a 3-year high on Tuesday.
Precious metals initially moved lower on Wednesday as signs of progress in peace talks over Ukraine have curbed some safe-haven demand. Also, Wednesday’s hawkish UK July CPI report may keep the BOE from cutting interest rates and is bearish for precious metals. Concerns over industrial metals demand are bearish for silver prices after ECB President Lagarde said the Eurozone economy is likely to see slower growth this quarter.
UK Jul CPI rose +3.8% y/y, stronger than expectations of +3.7% y/y and the fastest pace of increase in 1.5 years. Jul core CPI also rose +3.8% y/y, stronger than expectations of +3.7% y/y.
