The dollar index (DXY00) today is down by -0.17% but remains above last Friday's 1.5-month low. The dollar is under pressure from last Friday's weak US unemployment report and the increased expectations for Fed easing through year-end. The dollar is also being undercut by concerns over Fed independence, which could prompt foreign investors to dump dollar assets as President Trump attempts to fire Fed Governor Cook, and by Stephen Miran's intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors.
The markets are now pricing in a 10% chance of a 50 bp rate cut at the upcoming FOMC meeting on Sep 16-17, versus the previous expectations of a zero chance of that 50 bp rate cut. After the fully expected -25 bp rate cut at the Sep 16-17 FOMC meeting, the markets are now discounting an 81% chance of a second -25 bp rate cut at the Oct 28-29 meeting, up from a 54% chance as of late Thursday. The markets are now pricing in an overall -75 bp rate cut in the federal funds rate by year-end to 3.62% from the current 4.38% rate.
EUR/USD (^EURUSD) today is up by +0.26% on dollar weakness. The euro also saw support as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates three times by the end of this year.
Today's Eurozone economic news was mixed for the euro after German Jul industrial production rose more than expected, but the Eurozone Sep Sentix investor confidence index unexpectedly fell to a 5-month low.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, which is bearish for the euro. Also, political uncertainty in France is negative for the euro, with French Prime Minister Bayrou facing a confidence motion later today in the lower house.
The Eurozone Sep Sentix investor confidence index unexpectedly fell -5.5 to a 5-month low of -9.2, weaker than expectations of an increase to -2.0.
German Jul industrial production rose +1.3% m/m, stronger than expectations of +1.0% m/m and the largest increase in four months.
German trade news was mixed as Jul exports unexpectedly fell -0.6% m/m, weaker than expectations of a +0.1% m/m increase. However, Jul imports fell -0.1% m/m, a smaller decline than expectations of -1.0% m/m.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) is up by +0.20%. The yen is sliding today on political uncertainty in Japan after Japanese Prime Minister Ishiba said he will step down following two election results that stripped Japan's ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy. Losses in the yen are limited after Q2 Japan GDP was revised upward, and after the Aug Eco Watchers Outlook Survey rose to a 7-month high.
Japan Q2 GDP was revised upward to +2.2% (q/q annualized) from the previously reported +1.0%.
The Japan Aug eco watchers outlook survey rose +0.2 to a 7-month high of 47.5, right on expectations.
December gold (GCZ25) is up +15.70 (+0.43%), and December silver (SIZ25) is up +0.218 (+0.52%). Precious metal prices are moving higher today, with Dec gold posting a contract high and nearest-futures (U25) posting a record high of $3,635.00 an ounce. Today's weaker dollar is supportive of metals prices. Also, last Friday's weaker-than-expected US payroll report bolstered the outlook for Fed easing through year-end. In addition, increased gold buying from China's central bank is supportive for prices after the PBOC boosted its gold purchases by +0.06 million troy ounces in August to 74.02 million troy ounces, marking the tenth consecutive month the central bank has increased its gold reserves.
Gold prices continue to receive support from uncertainty tied to US tariffs and geopolitical risks. Also, political uncertainty in France and Japan is driving demand for gold as a safe-haven asset. French Prime Minister Bayrou is facing a confidence vote today that could bring down his government, and Japanese Prime Minister Ishiba said he will step down following two election results that stripped Japan's ruling Liberal Democratic Party of its majorities in both houses of parliament, which is seen as paving the way toward a more expansionary fiscal policy.
Precious metals prices continue to receive support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 2-year high last Tuesday, and silver holdings in ETFs rose to a 3-year high last Wednesday.
