The dollar index (DXY00) on Thursday rose by +0.09% and posted a 2-week high. The dollar recovered from overnight losses and moved higher Thursday on signs of strength in the US labor market, a hawkish factor for Fed policy, after weekly jobless claims unexpectedly fell to an 8-week low. Also, higher T-note yields on Thursday strengthened the dollar's interest rate differentials. In addition, hawkish comments from St. Louis Fed President Musalem boosted the dollar when he said he sees upside risks to inflation. The dollar fell back from its best levels after the S&P 500 reached a new record high, which reduced liquidity demand for the dollar.
US weekly initial unemployment claims unexpectedly fell -5,000 to an 8-week low of 227,000, showing a stronger labor market than expectations of an increase to 235,000. However, weekly continuing claims rose +10,000 to a 3.5-year high of 1.965 million, right on expectations and a sign that out-of-work Americans are finding it difficult to secure a new job.
St. Louis Fed President Musalem said he sees upside risks to inflation, but it's too early to know whether tariffs will have a persistent impact on prices.
The markets are discounting a 7% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) Thursday fell by -0.22% and posted a 2-week low. The euro was undercut Thursday by a stronger dollar. The euro was also weighed down by negative Eurozone economic news after Italy's weak May industrial production report.
Italy May industrial production fell -0.7% m/m, weaker than expectations of -0.2% m/m.
Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Thursday fell by -0.08%. The yen on Thursday recovered from early losses and moved slightly higher after T-note yields gave up most of their gains, which sparked short covering in the yen. The yen was under pressure Thursday after Japanese June producer prices showed the smallest increase in 10 months, a dovish factor for BOJ policy. The yen is also weighed down by concerns that higher US tariffs will undercut the Japanese economy and prevent the BOJ from further tightening monetary policy.
The yen has been undercut by worries about the upper house election in Japan on July 20. The promises by Japan's ruling Liberal Democratic Party of cash handouts to voters and promises of lower taxes by the opposition have sparked concerns of fiscal deterioration, which are bearish for the yen.
Japan June PPI eased to +2.9% y/y from +3.3% y/y in May, right on expectations and the slowest pace of increase in 10 months.
August gold (GCQ25) Thursday closed up +4.70 (+0.14%), and September silver (SIU25) closed up +0.675 (+1.84%). Precious metals moved higher on Thursday as US trade policy has led to economic uncertainty and is boosting safe-haven demand for precious metals. Gold prices also received a boost from increased demand for gold as an inflation hedge after St. Louis Fed President Musalem said he sees upside risks to inflation. In addition, central bank buying of gold is supporting prices after the People's Bank of China (PBOC) purchased 70,000 MT of gold bullion in June, the eighth consecutive month the PBOC has added gold to its reserves.
Thursday's rally in the dollar to a 2-week high limited gains in metals prices. Also, Thursday's US weekly initial unemployment claims report showed jobless claims unexpectedly fell to an 8-week low, a hawkish factor for Fed policy that is bearish for precious metals. Additionally, higher T-note yields on Thursday are unfavorable for precious metals.
Fund buying of silver is supporting silver prices as silver holdings in ETFs rose to a 2.75-year high on Wednesday. Silver also had carryover support from Thursday's +2% rally in copper prices, following President Trump's announcement that the US will impose a 50% tariff on copper imports, effective August 1.
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.
