Dollar Gains on Higher T-note Yields and Hawkish Fed Comments

The dollar index (DXY00) Thursday rose by +0.34%.  Higher T-note yields Thursday strengthened the dollar’s interest rate differentials and supported the dollar.  Also, hawkish comments Thursday from Minneapolis Fed President Kashkari were bullish for the dollar when he said it would likely take a year or two for the US to get back to 2% inflation.  Thursday’s weaker-than-expected US economic reports were bearish for the dollar. 

US weekly initial unemployment claims fell -5,000 to 238,000, signaling a weaker labor market than expectations of 235,000. 

US May housing starts unexpectedly fell -5.5% m/m to a 4-year low of 1.277 million, weaker than expectations of an increase to 1.370 million.  May building permits, a proxy for future construction, unexpectedly fell -3.8% m/m to a 4-year low of 1.386 million, weaker than expectations of an increase to 1.450 million.

The US June Philadelphia Fed business outlook survey unexpectedly fell -3.2 to a 5-month low of 1.5, weaker than expectations of an increase to 5.0.

Minneapolis Fed President Kashkari said it will likely take a year or two for the US to get back to 2% inflation, suggesting he favors keeping interest rates higher for longer.

The markets are discounting the chances for a -25 bp rate cut at 10% for the July 30-31 FOMC meeting and 61% for the following meeting on Sep 17-18.

EUR/USD (^EURUSD) Thursday fell by -0.37%.  The stronger dollar Thursday weighed on the euro.  Also, Thursday’s Eurozone new car registrations report and German PPI report were dovish for ECB policy and negative for the euro.

Eurozone May new car registrations fell -3.0% y/y to 912,000.

The Eurozone Jun consumer confidence index rose +0.3 to a 2-1/3 year high of -14.0, weaker than expectations of -13.8.

German May PPI was unchanged m/m and fell -2.2% y/y, weaker than expectations of +0.1% m/m and -2.0% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 5% for the July 18 meeting and 60% for the September 12 meeting.

USD/JPY (^USDJPY) Thursday rose by +0.49%.  The yen on Thursday tumbled to a 7-week low against the dollar. The yen remains under pressure as Japan’s government bond yields are well below those of other G-7 countries. Also, rising T-note yields Thursday were bearish for the yen.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 37% for the July 31 meeting and 57% for the September 20 meeting.

August gold (GCQ4) Thursday closed up +22.10 (+0.94%), and July silver (SIN24) closed up +1.267 (+4.25%).  Precious metals rallied to 1-1/2 week highs on Thursday.  Gold prices are being underpinned by continued gold buying by the world’s central banks as a dollar diversification strategy. World Gold Council data for Q1 show the central bank of Turkey bought 30 MT of gold, China’s central bank bought 27 MT of gold, and India's central bank bought 18.5 MT of gold.   Also, Thursday’s weaker-than-expected US economic reports were dovish for Fed policy and bullish for precious metals prices.   

Thursday’s rally in the S&P 500 to a new all-time high reduced safe-haven demand for precious metals and was bearish for gold and silver.  Also, a stronger dollar and higher T-note yields Thursday were negative for metals.  Thursday’s unexpected declines in US May housing starts and building permits reports show reduced demand for industrial metals and were 

More Precious Metal News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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