The dollar index (DXY00) on Thursday rose by +0.29% and posted a 3.5-week high. Signs of strength in the US economy may keep the Fed from cutting interest rates and are supportive of the dollar. Weekly initial unemployment claims unexpectedly fell to a 3-month low, June retail sales rose more than expected, and the July Philadelphia Fed business outlook survey rose to a 5-month high. The dollar added to its gains Thursday after Fed Governor Kugler said it's appropriate for the Fed to hold rates steady for "some time." However, the dollar fell back from its best levels on dovish comments from San Francisco Fed President Mary Daly, who said she expects two 25 bp rate cuts this year.
US weekly initial unemployment claims unexpectedly fell -7,000 to a 3-month low of 221,000, showing a stronger labor market than expectations of an increase to 233,000.
US June retail sales rose +0.6% m/m, stronger than expectations of +0.1% m/m, and Jun retail sales ex-autos rose +0.5% m/m, stronger than expectations of +0.3% m/m.
The US June import price index ex-petroleum was unchanged m/m, weaker than expectations of +0.2% m/m.
The US July Philadelphia Fed business outlook survey rose +19.9 to a 5-month high of 15.9, stronger than expectations of -1.0.
The US July NAHB housing market index rose +1 to 33, right on expectations.
Fed Governor Kugler said the Fed should keep interest rates on hold "for some time," citing the acceleration of inflation as tariffs begin to boost prices.
San Francisco Fed President Mary Daly said the most recent set of rate projections from Fed officials, issued in June, offered a "reasonable outlook" in pointing to two 25 bp rate cuts by year's end. She added that the Fed should not wait too long before moving on rates, because if they wait until inflation is 2%, they've "likely injured the economy in some way that was completely unnecessary."
On the trade front, President Trump said late Wednesday that he intends to send a tariff letter to more than 150 countries notifying them their tariff rates could be 10% or 15%, effective August 1, and that the group was "not big countries who don't do that much business with the US." Also, Commerce Secretary Lutnick said Nvidia could soon resume sales of its less advanced H20 chips to China, and Advanced Micro Devices received similar assurances from the Commerce Department, in a sign that the US may be in the process of negotiating a grand trade deal with China. Treasury Secretary Bessent is expected to meet his Chinese counterpart, Vice Premier He Lifeng, within "the next couple of weeks" and signaled the US will likely extend an August 12 deadline for the easing of sky-high tariffs.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and 58% at the following meeting on September 16-17.
EUR/USD (^EURUSD) Thursday fell by -0.40% and posted a 3.5-week low. The dollar's strength on Thursday undercut the euro. The euro also came under pressure on comments from Italian Deputy Premier Tajani, who said the euro is "too strong and the ECB needs to cut interest rates "to weaken the euro.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Thursday rose by +0.51%. The yen is under pressure due to concern that Japanese Prime Minister Ishiba's Liberal Democratic Party (LDP) could lose its majority in Sunday's upper house election. 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. The yen extended its losses after T-note yields rose.
Japanese trade news is mixed for the yen. On the negative side, Japan's June exports unexpectedly fell -0.5% y/y, weaker than expectations of +0.5% y/y. Conversely, June imports unexpectedly rose +0.2% y/y, stronger than expectations of -1.1% y/y.
August gold (GCQ25) Thursday closed down -13.80 (-0.41%), and September silver (SIU25) closed up +0.184 (+0.48%). Precious metals on Thursday settled mixed, with the price of gold sliding to a 1.5-week low. Thursday's rally in the dollar index to a 3.5-week high was bearish for metals. Also, strength in stocks on Thursday has curbed safe-haven demand for precious metals. In addition, precious metals came under pressure after President Trump said he's "not planning on doing anything" to remove Fed Chair Powell. Finally, hawkish comments Thursday from Fed Governor Kugler undercut precious metals when she said the Fed should keep interest rates on hold "for some time."
Precious metals recovered from their worst levels Thursday, with silver moving into positive territory when San Francisco Fed President Mary Daly said recent Fed rate projections offered a "reasonable outlook" in pointing to two 25 bp rate cuts by year's end. Precious metals also receive safe-haven support from global trade tensions, following President Trump's announcement that he intends to send a tariff letter to more than 150 countries, notifying them that their tariff rates could be 10% or 15%, effective August 1. In addition, fund buying of gold continues to support prices after the amount of gold in ETFs rose to a nearly 2-year high on Wednesday.
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.
