The dollar index (DXY00) on Thursday fell by -0.40%. The dollar was under pressure Thursday from a stronger yuan, which rose to a 9.5-month high against the dollar. The dollar also remains under pressure due to concern over the Fed's independence and fears about capital flight with President Trump's move to fire Fed Governor Lisa Cook. If Mr. Trump succeeds in firing Fed Governor Cook, foreign investors may lose faith in the Fed and the dollar and swap their dollar assets into non-dollar investments. Losses in the dollar accelerated on Thursday when the S&P 500 reached a new record high, which reduced liquidity demand for the dollar.
The dollar found some support Thursday on signs that the US economy is holding up after an upside revision showed Q2 GDP expanded more than expected. Also, concerns about the US labor market eased after weekly initial unemployment claims fell as expected.
US Q2 GDP was revised upward to +3.3% (q/q annualized) from the previously reported +3.0%, stronger than expectations of +3.1%.
US weekly initial unemployment claims fell -5,000 to 229,000, close to expectations of 230,000.
US Jul pending home sales fell -0.4% m/m, weaker than expectations of -0.2% m/m.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 85% at the September 16-17 FOMC meeting and at 54% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) on Thursday rose by +0.41%. The euro moved higher on Thursday due to weakness in the dollar. Also, an upbeat summary of the July 23-24 ECB meeting gave the euro a boost after policymakers said the Eurozone economy is so far resilient to headwinds. In addition, Thursday's report that showed Eurozone July new car registrations rose by the most in 15 months is bullish for the euro. Gains in the euro were limited after the Eurozone's Aug economic confidence indicator unexpectedly declined.
Eurozone Jul new car registrations rose +7.4% y/y to 914,680, the biggest increase in 15 months.
The Eurozone Aug economic confidence indicator unexpectedly fell -0.5 to 95.2, weaker than expectations of an increase to 96.0.
The summary of the July 23-24 ECB meeting indicated that policymakers deemed the risks to inflation to be "broadly balanced" and that the Eurozone economy has so far remained resilient to headwinds, including tariffs and wars.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, as the US tries to broker a peace deal between the two countries. On Thursday, German Chancellor Merz said a meeting between Russian President Putin and Ukrainian President Zelensky is unlikely to materialize. The outcome of the Russian-Ukrainian war could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.
Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) on Thursday fell by -0.38%. The yen pushed higher on Thursday due to a weaker dollar. Also, hawkish comments on Thursday from BOJ Board member Junko Nakagawa gave the yen a boost when she affirmed the BOJ's stance that it will continue raising interest rates. Gains in the yen were limited after today's +0.73% rally in the Nikkei Stock Index curbed safe-haven demand for the yen.
BOJ Board member Junko Nakagawa said, If the outlook for the economy and inflation is realized, "the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation."
December gold (GCZ25) on Thursday closed up +25.70 (+0.75%), and September silver (SIU25) closed up +0.477 (+1.23%). Precious metal prices rallied on Thursday, with gold climbing to a 2.5-week high and silver posting a 5-week high. Thursday's weaker dollar was bullish for metals. Also, President Trump's move to fire Fed Governor Lisa Cook has sparked concerns about the Fed's independence and increased demand for safe-haven assets, including precious metals. In addition, political uncertainty in France is driving demand for gold as a safe-haven, following French Prime Minister Bayrou's call for a confidence vote that could bring down his government as soon as next month. Precious metals raced to their highs Thursday afternoon when German Chancellor Merz said a meeting between Russian President Putin and Ukrainian President Zelensky is unlikely to materialize.
Silver prices received additional support on Thursday after the US Q2 GDP was revised higher than expected, a factor that supports industrial metals demand. Gold has continued safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East. The fund buying of precious metals continues to support prices, following the rise in gold holdings in ETFs to a 2-year high on August 15 and the rise in silver holdings in ETFs to a 3-year high on Tuesday.
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.
