The dollar index (DXY00) Thursday fell by -0.75% and posted a 15-month low. The dollar was under pressure Thursday as T-note yields retreated after the weaker-than-expected U.S. Jun PPI report added to evidence that price pressures are easing, which has bolstered speculation the Fed will soon end its rate hike campaign. Also, the strength in stocks Thursday reduced the liquidity demand for the dollar.
U.S. Jun PPI final demand eased to +0.1% y/y from +0.9% y/y in May, better than expectations of +0.4% y/y and the smallest pace of increase in 2-3/4 years. Also, Jun PPI ex-food and energy eased to +2.4% y/y from +2.6% y/y in May, better than expectations of +2.6% y/y and the smallest pace of increase in almost 2-1/2 years.
Signs of strength in the U.S. labor market are hawkish for Fed policy and supportive for the dollar after weekly initial unemployment claims unexpectedly fell -12,000 to 237,000, showing a stronger labor market than expectations of an increase to 250,000.
Hawkish comments Thursday from San Francisco Fed President Daly were supportive of the dollar when she said it's "too soon" to declare victory on inflation and that "while we've put over 500 bp of tightening in the system over a rapid period of time, we still have an economy that has a lot of momentum. This is why we continue to say we're going to keep working on rate hikes until we're sure that inflation is on a path to come down to 2%.”
EUR/USD (^EURUSD) Thursday rose by +0.86% and posted a 15-month high. Dollar weakness is a bullish factor for the euro. EUR/USD also found support on Thursday’s hawkish minutes of the June 15 ECB meeting that stated that “a very broad consensus supported the 25 bp rate increase” as it was widely felt that core inflation hadn’t shown a turning point.
Thursday’s economic news was bearish for the euro after Eurozone May industrial production rose +0.2% m/m, weaker than expectations of +0.3% m/m.
USD/JPY (^USDJPY) on Thursday fell -0.32%. The yen Thursday rallied for the sixth consecutive session and posted a 1-1/2 month high against the dollar. Lower T-note yields Thursday 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%.
August gold (GCQ3) Thursday closed up +2.1 (+0.11%), and Sep silver (SIU23) closed up +0.639 (+2.63%). Precious metals prices Thursday extended this week’s gains, with gold posting a 1-month high and silver posting a 5-week high. Thursday's slump in the dollar index to a 15-month low is bullish for metals. Also, lower global bond yields Thursday are supportive of metals prices. In addition, metals are gaining after that Thursday’s weaker-than-expected U.S. June PPI report adds to evidence that price pressures are easing and could prompt the Fed to end its rate-hiking campaign. Gains in gold were limited due to the ongoing fund liquidation of gold as holdings in gold ETFs fell to a 4-month low on Wednesday. Also, a rally in stocks on Thursday has 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.
