The dollar index (DXY00) today is up by +0.72% at a 1-week high. The dollar is gaining today as global trade tensions ease following the EU and US agreeing to a trade deal, and China and the US are set to extend their trade truce by another three months. The dollar also garnered support as the euro weakened, as the EU-US trade deal is seen as favoring the US. In addition, expectations for the Fed to keep interest rates unchanged at the end of Wednesday's 2-day FOMC meeting are supportive of the dollar. The dollar extended its gains after the Jul Dallas Fed manufacturing outlook survey rose more than expected to a 6-month high. On the negative side, today's rally in the S&P 500 to a new all-time high has curbed liquidity demand for the dollar.
The US Jul Dallas Fed manufacturing outlook survey rose +13.6 to a 6-month high of 0.9, stronger than expectations of -9.0.
The European Union (EU) and the US reached a trade deal on Sunday that will see the EU face 15% tariffs on most of its exports, lower than previous threats from President Trump of tariffs as high as 50%.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and 63% at the following meeting on September 16-17.
EUR/USD (^EURUSD) today is down by -0.91% and posted a 1-week low. The euro is under pressure today as the announced EU-US trade deal is seen as favoring the US, with 15% tariffs imposed on most EU goods, which could pose headwinds to the Eurozone economy due to the higher tariffs.
Today's hawkish comments from ECB Governing Council member Kazimir were supportive of the euro, as he stated that the ECB shouldn't cut interest rates in September unless there's evidence of a major deterioration in the economy.
Swaps are pricing in a 14% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) today is up by +0.35%. The yen fell to a 1-week low against the dollar today as the EU-US trade deal has eased global trade tensions and reduced safe-haven demand for the yen. Higher T-note yields today are also bearish for the yen. The yen garnered some support today after Prime Minister Ishiba insisted he would stay on as Prime Minister despite his LDP party losing its majority in the July 20 upper house elections.
The yen continues to be undercut by concerns that the LDP's loss of its majority in Japan's upper house in the July 20 elections may lead to fiscal deterioration in Japan's government finances, as the government boosts spending and implements tax cuts.
August gold (GCQ25) today is down -30.00 (-0.90%), and September silver (SIU25) is down -0.115 (-0.30%). Precious metals are falling today, with gold posting a 2.5-week low and silver posting a 1-week low. Today's stronger dollar is bearish for metals. Easing global trade tensions is also undercutting safe-haven demand for precious metals after the EU and US agreed to a trade deal and following the South China Morning Post's report that China and the US are set to extend their trade truce by another three months. In addition, today's rally in the S&P 500 to a new record high has reduced safe-haven demand for precious metals. Finally, hawkish comments today from ECB Governing Council member Kazimir undercut precious metals when he said he favors the ECB holding interest rates steady at the September policy meeting.
Precious metals continue to receive safe-haven support from 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 two-year high last Friday, and silver holdings in ETFs reached a three-year high on the same day.
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.
