The Dollar Index (DXY00) was down -0.19% on Monday. The dollar gave up overnight gains and turned lower on Monday as the euro strengthened on easing French political risks. The dollar extended its losses on Monday as the S&P 500 hit a new all-time high, curbing demand for dollar liquidity.
The dollar initially strengthened on Monday as rising short-term Treasury yields widened the dollar’s interest rate differential. The dollar also received support on Monday after U.S. economic news showed the Empire Manufacturing Index rose more than expected in June to its highest level in four months. Hawkish comments from Minneapolis Fed President Neel Kashkari and Philadelphia Fed President Harker, who said the Feds could wait to cut interest rates, also supported the dollar.
The US Imperial Manufacturing Survey’s general economic activity index for June rose by +9.6 to -6.0, the highest level in four months, beating the forecast of -10.0.
Philadelphia Fed President Patrick Harker said he thinks one rate cut from the Fed this year would be appropriate, adding that he expects inflation to improve for “a few more months.”
Minneapolis Federal Reserve Bank President Neel Kashkari said Sunday that the Fed is in a good position to start cutting interest rates after taking time to monitor upcoming data.
Markets are pricing in an 8% chance of a 25bp cut at the FOMC meeting on July 30-31, and a 60% chance at the next meeting on September 17-18.
EUR/USD (^EURUSD) +0.27% up on Monday. The euro rose modestly on Monday after eurozone first quarter labor costs were revised upwards, signaling a more hawkish ECB policy. The euro continued to rise on Monday as political uncertainty in France eased slightly after poll-leading National Rally leader Marine Le Pen said she would work with French President Macron if her party wins the upcoming general election.
Eurozone first-quarter labour costs were revised upward to 5.1% y/y from the previously reported 4.9% y/y.
ECB Governing Council member Vujicic said a September rate cut would require an improvement in the ECB’s inflation outlook.
Swaps markets are pricing in an 11% chance of the ECB cutting rates by 25 basis points at its July 18 meeting and a 59% chance at its September 12 meeting.
USD/JPY (^USDJPY), +0.22% rose on Monday. The yen weakened on Monday after Japan’s core machinery orders fell the most in five months in April, a dovish factor for Bank of Japan policy. A rise in T-bond yields on Monday also dragged the yen lower. The yen’s decline was limited after BOJ Governor Ueda said on Monday that the government needs to continue to closely monitor exchange rates and import prices for their impact on inflation.
Japan’s core machinery orders fell 2.9% from the previous month in April, the biggest drop in five months.
The swaps imply a 37% chance of the Bank of Japan raising rates by 10 basis points at its July 31 meeting and a 51% chance at its September 20 meeting.
August gold (GCQ4) closed -20.10 (-0.86%) lower on Monday, while July silver (SIN24) closed -0.081 (-0.27%) lower. Precious metals were slightly lower on Monday. A rise in global bond yields on Monday weighed on precious metals. Also, lower political uncertainty in France after French National Party leader Le Pen said she would work with President Macron if she wins the upcoming French general election suppressed safe haven demand for precious metals. Additionally, hawkish comments from Minneapolis Fed President Neel Kashkari and Philadelphia Fed President Harker that the Fed could take its time to cut interest rates also pushed gold prices lower. Silver prices fell on concerns about Chinese demand for industrial metals after economic reports on Monday showed that China’s May industrial production fell short of expectations and that China’s new home prices fell -0.71% month-on-month in May, the biggest drop in nine and a half years.
A weaker dollar on Monday limited the decline in metals prices, and silver received some support from U.S. economic news on Monday, as the Empire Manufacturing Survey’s general business sentiment index for June rose more than expected to reach its highest level in four months, a positive for industrial metals demand.
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