The dollar index (DXY00) Wednesday plunged by -1.17% and posted a 14-1/2 month low. The dollar sank Wednesday on speculation the weaker-than-expected U.S. June CPI report will prompt the Fed to end its rate hike campaign sooner than expected. Also, lower T-note yields Wednesday weighed on the dollar, and strength in stocks reduced the liquidity demand for the dollar.
The U.S. June CPI report eased to +3.0% y/y from +4.0% y/y in May, better than expectations of +3.1% y/y and the smallest increase in 2-1/4 years. Also, June CPI ex-food and energy eased to +4.8% y/y from +5.3% y/y in May, better than expectations of +5.0% y/y and the smallest increase in 1-1/2 years.
The Fed Beige Book was neutral for the dollar s it stated that "Overall economic activity increased slightly since late May," and prices increased at a "modest" pace overall in the month through June 30. The report also said, "Economic expectations for the coming months generally continued to call for slow growth."
Comments Wednesday from White House National Economic Council Director Brainard supported the dollar when she said, "Despite repeated forecasts that recession is just around the corner, the U.S. recovery is solid, and inflation is down. The economy is defying predictions that inflation would not fall absent significant job destruction."
Wednesday’s Hawkish comments from Richmond Fed President Barkin were bullish for the dollar when he said that even though U.S. inflation slowed in June, "it is still too high. Our target is 2%. If you back off too soon, inflation comes back strong, which then requires the Fed to do even more."
EUR/USD (^EURUSD) Wednesday rose by +1.14% and posted a 15-month high. A slump in the dollar Wednesday was bullish for the euro. Also, positive comments Wednesday from ECB Governing Council member Vukcic gave EUR/USD a boost when he said he saw slight positive economic growth for the Eurozone in Q2.
USD/JPY (^USDJPY) on Wednesday fell -1.40%. The yen Wednesday rallied sharply to a 7-week high against the dollar. Lower T-note yields Wednesday were bullish for the yen. Also, speculation about a possible change in policy from the BOJ later this month has pushed government bond yields higher and supported the yen after the 10-year JGB bond yield climbed to a 2-1/2 month high Wednesday at 0.478%.
Wednesday’s Japanese economic news was bearish for the yen. Japan’s June PPI eased to +4.1% y/y from +5.1% y/y in May, better than expectations of +4.4% and the smallest increase in over two years. Also, May core machine orders unexpectedly fell -7.6% m/m, weaker than expectations of +1.0% m/m and the biggest decline in 15 months.
August gold (GCQ3) Wednesday closed up +24.6 (+1.27%), and Sep silver (SIU23) closed up +1.029 (+4.42%). Precious metals prices rallied Wednesday, with gold posting a 3-week high and silver posting a 1-month high. Wednesday’s selloff in the dollar index to a 14-1/2 month low was bullish for metals prices. Also, lower global bond yields Wednesday were supportive of metals prices. In addition, metals are gaining on expectations that Wednesday’s weaker-than-expected U.S. June CPI report will prompt the Fed to end its rate-hiking campaign. On the negative side is the ongoing fund liquidation of gold as holdings in gold ETFs fell to a 4-month low on Tuesday. Also, stock strength Wednesday reduced the safe-haven demand for precious metals.
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.
