Dollar Follows T-Note Yields Lower

Dollars and Wallets - Money Being Ripped in Two

The dollar index (DXY00) today is down by -0.15%.  The dollar today gave up overnight gains and turned lower as T-note yields fell on the weaker-than-expected US May retail sales report.  The dollar today initially moved higher based on comments from New York Fed President Williams, who said the US economy is "moving in the right direction."  Also, today’s stronger-than-expected report on US Apr manufacturing production was bullish for the dollar. 

US May retail sales rose +0.1% m/m, weaker than expectations of +0.3% m/m.  Also, Apr retail sales were revised downward to -0.2% m/m from the previously reported unchanged m/m.

US May manufacturing production rose +0.9% m/m, stronger than expectations of +0.3% m/m.

New York Fed President Williams said the US economy is "moving in the right direction" but needs more data before the Fed can cut interest rates.

The markets are discounting the chances for a -25 bp rate cut at 8% for the July 30-31 FOMC meeting and 65% for the following meeting on Sep 17-18.

EUR/USD (^EURUSD) today is up by +0.20%.  Today, the euro recovered early losses and moved higher on hawkish comments from ECB Vice President Guindos, who said the ECB’s economic forecasts in September will be the next time the ECB debates about cutting interest rates.  The euro today initially moved lower on the weaker than expected German Jun ZEW survey of economic growth. 

The German Jun ZEW survey expectations of economic growth rose +0.4 to a 2-1/3 year high of 47.5, weaker than expectations of 50.0.

ECB Vice President Guindos said, "ECB forecasts are updated every three months, and the next one is in September.  The forecasts are an important indicator at the time of deciding how interest rates will evolve."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 57% for the September 12 meeting.

USD/JPY (^USDJPY) today is little changed, up by +0.10%.  The yen is under pressure as Japan’s government bond yields remain well below those of other G-7 countries.  Losses in the yen are limited by comments today from BOJ Governor Ueda, who said that an interest rate hike is possible at next month’s BOJ meeting.  Today’s decline in T-notes is also supportive of the yen.

BOJ Governor Ueda said, "There is a good chance for the policy rate to be raised in July, depending on data and information on the economy, inflation, and financial conditions."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 34% for the July 31 meeting and at 60% for the September 20 meeting.

August gold (GCQ4) today is up +10.60 (+0.46%), and July silver (SIN24) is up +0.114 (+0.39%).  Precious metals today are moving higher due to a weaker dollar.  Also, today’s decline in global bond yields supports precious metals.  In addition, today’s report on US May retail sales was below expectations, a dovish factor for Fed policy and bullish for precious metals.  Silver garnered support from today’s stronger-than-expected US May manufacturing production report, a positive factor for industrial metals demand and silver prices. 

Hawkish central bank comments today are limiting gains in precious metals.   New York Fed President Williams said the Fed needs more data before it can cut interest rates.  Also, ECB Vice President Guindos said the ECB should wait until its September economic projections before deciding on whether to cut interest rates.   In addition, BOJ Governor Ueda said that an interest rate hike is possible at next month’s BOJ meeting.   

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.