The dollar index (DXY00) on Monday fell by -0.33%. The dollar on Monday dropped from a 3-week high and turned lower on dovish Fed comments. Fed Governor Bowman and Chicago Fed President Goolsbee said they favored a Fed rate cut at next month’s FOMC meeting. Also, Monday’s rebound in stocks curbed liquidity demand for the dollar. In addition, Monday’s fall in the 10-year T-note yield to a 6-week low weighed on the dollar’s interest rate differentials.
The dollar initially rallied to a 3-week high Monday after the weekend attack by the US on Iran’s nuclear facilities boosted safe-haven demand for the dollar. The dollar also found support from the stronger-than-expected US PMI and existing home sales reports.
The June S&P US manufacturing PMI was unchanged at 52.0, stronger than expectations of a decline to 51.0.
US May existing home sales unexpectedly rose +0.8% m/m to 4.03 million versus expectations of a -1/3% m/m decline to 3.95 million.
Fed Governor Bowman said, “Should inflation pressures remain constrained, I would support lowering the fed funds policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market.”
Chicago Fed President Goolsbee said the Fed could resume interest rate cuts if the inflation hit from tariffs remains subdued.
The markets are discounting the chances at 23% for a -25 bp rate cut after the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) Monday rose by +0.42%. The euro recovered from early losses on Monday and rallied after the dollar gave up an early advance and sank on dovish Fed comments. The euro on Monday initially moved lower due to weaker-than-expected Eurozone June PMI reports. Also, dovish comments on Monday from ECB Governing Council member Centeno undercut the euro when he said the Eurozone economy needs more ECB stimulus.
The June S&P Eurozone manufacturing PMI was unchanged at 49.4, weaker than expectations of an increase to 49.7. Also, the June S&P Eurozone composite PMI was unchanged at 50.2, weaker than expectations of an increase to 50.4.
ECB Governing Council member Centeno said, “The supply and demand conditions are still too weak in the Eurozone to allow a return to the 2% inflation target without further stimulus.”
Swaps are discounting the chances at 6% for a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Monday rose by +0.07%. The yen tumbled to a 1-1/4-month low against the dollar today on concern that rising energy costs will derail Japan’s economy after the escalation of Middle East hostilities pushed crude prices up to a 5-1/4 month high. The yen also fell after Japanese officials denied a Financial Times report that said the US asked Japan to raise its defense spending to 3.5% of annual GDP.
However, the yen recovered most of its losses on Monday after T-note yields plunged following dovish comments from the Fed. The yen also garnered support from Monday’s Japanese economic news, which showed that the June Jibun Bank Japanese manufacturing PMI expanded at its fastest pace in 13 months. In addition, the Japan Finance Ministry’s cut in its long-term bond sales was supportive for the yen.
The June Jibun Bank Japan manufacturing PMI rose +1.0 to 50.4, the highest level in 13 months.
The Japanese Finance Ministry said it will reduce the volume of 20-year, 30-year, and 40-year bonds sold in auctions by a combined 3.2 trillion yen ($21.7 billion) starting in July through the end of March 2026.
August gold (GCQ25) Monday closed up +9.30 (+0.27%), and July silver (SIN25) closed up +0.170 (+0.47%). Precious metals moved higher Monday after the US launched attacks over the weekend on Iran’s nuclear facilities, escalating tensions in the Middle East and prompting some safe-haven demand for precious metals. Lower global bond yields on Monday were also supportive of precious metals. In addition, dovish central bank comments boosted demand for precious metals as a store of value. Fed Governor Bowman and Chicago Fed President Goolsbee said they support a Fed rate cut at next month’s policy meeting, and ECB Governing Council member Centeno said the Eurozone economy needs more ECB stimulus. Fund buying of gold and silver continues to support prices. Gold holdings in ETFs rose to a 1-3/4 year high last Friday, and silver holdings in ETFs rose to a 2-3/4 year high.
Monday’s rally in stocks limited the upside in precious metals. Also, Iran’s meager retaliation attempt against the US for attacking its nuclear facilities reduced safe-haven demand for precious metals after missile attacks by Iran on US bases in Qatar were intercepted with no damage done to US assets.
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.
