The dollar index (DXY00) fell by -0.08% on Thursday. The dollar moved lower on Thursday as strength in stocks reduced liquidity demand for the currency. Also, Thursday’s -2% fall in crude oil prices lowered inflation expectations and could prompt the Fed to ease monetary policy, a bearish factor for the dollar. The dollar dropped to its low after US Jun existing home sales unexpectedly declined.
Losses in the dollar were limited on Thursday after US weekly jobless claims unexpectedly fell to a 6-week low, a sign of labor market strength. Also, the escalation of hostilities between the US and Iran has boosted demand for the dollar as a safe haven.
Join 200K+ Subscribers:
Find out why the midday Barchart Brief newsletter is a must-read for thousands daily.
The US military struck Iran for a second day on Thursday, hitting about 90 Iranian targets to degrade the country’s ability to attack commercial shipping in the Strait of Hormuz. Iran responded by targeting US bases in Bahrain, Kuwait, and Qatar with drones and missiles.
US weekly initial unemployment claims unexpectedly fell -2,000 to a 6-week low of 215,000, showing a stronger labor market than expectations of a +2,000 increase to 217,000.
US Jun existing home sales unexpectedly fell -2.4% m/m to 4.09 million, weaker than expectations of an increase to 4.20 million.
The swaps markets are discounting the odds at 24% for a +25 bp rate hike at the next FOMC meeting on July 28-29.
EUR/USD (^EURUSD) rose by +0.13% on Thursday. The euro edged higher on Thursday amid dollar weakness. The euro also found support from higher European government bond yields, which strengthened the euro’s interest rate differentials after the 10-year German Bund yield climbed to a 1.5-month high of 3.118% on Thursday.
Thursday’s German trade news was mixed for the euro. German May exports unexpectedly rose +0.9% m/m versus expectations of a -0.4% m/m decline. However, May imports fell -2.5% m/m, weaker than expectations of a -0.8% m/m decline.
The markets are discounting a +14% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) fell by -0.14% on Thursday. The yen moved higher on Thursday amid signs of strength in Japan’s economy after June machine tool orders posted their largest increase in nearly 4.5 years. The yen also found support from the quarterly Sakur report, which flagged inflation risks in Japan’s economy, a hawkish factor for BOJ policy. In addition, stronger Japanese government bond yields have strengthened the yen’s interest rate differentials after the 10-year JGB yield climbed to a 29-year high of 2.902% on Thursday.
The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen reached that level.
Japan Jun machine tool orders rose +52.8% y/y, the largest increase in nearly 4.5 years.
In its quarterly Sakura report today, the BOJ found that all nine economic regions in Japan have been recovering or picking up to some degree despite the Middle East conflict while also flagging inflation risks, supporting policymakers’ stance to keep raising interest rates.
The markets are discounting a +2% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.
August COMEX gold (GCQ26) on Thursday closed up +58.40 (+1.43%), and September COMEX silver (SIU26) closed up +2.208 (+3.77%).
Gold and silver prices settled sharply higher on Thursday amid weakness in the dollar and from lower T-note yields. Also, Thursday’s -2% decline in crude oil prices lowered inflation expectations, which could prompt central banks to ease monetary policy, a bullish factor for precious metals. In addition, precious metals have some safe-haven support due to renewed tensions in the Middle East following US attacks on Iran for a second day today in response to attacks on shipping in and around the Strait of Hormuz. Gains in precious metals were limited as Thursday’s stock rally curbed safe-haven demand for the metals.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low last Friday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.5-month low on Monday from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC boosted its gold reserves.
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.
More news from Barchart
