The dollar index (DXY00) today is up by +0.22%. The dollar recovered from overnight losses and moved higher today on signs of strength in the US labor market, a hawkish factor for Fed policy, after weekly jobless claims unexpectedly fell to an 8-week low. Also, higher T-note yields today have strengthened the dollar’s interest rate differentials.
US weekly initial unemployment claims unexpectedly fell -5,000 to an 8-week low of 227,000, showing a stronger labor market than expectations of an increase to 235,000. However, weekly continuing claims rose +10,000 to a 3.5-year high of 1.965 million, right on expectations and a sign that out-of-work Americans are finding it difficult to secure a new job.
The markets are discounting a 7% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.29% at a 2-week low. The euro is being weighed down today by a stronger dollar. The euro was also undercut by negative Eurozone economic news after Italy’s weak May industrial production report.
Italy May industrial production fell -0.7% m/m, weaker than expectations of -0.2% m/m.
Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) today is up by +0.21%. The yen is under pressure today after Japanese June producer prices showed the smallest increase in 10 months, a dovish factor for BOJ policy. The yen is also weighed down by concerns that higher US tariffs will undercut the Japanese economy and prevent the BOJ from further tightening monetary policy. The yen extended its losses today after T-note yields rose.
The yen has been undercut by worries about the upper house election in Japan on July 20. 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.
Japan June PPI eased to +2.9% y/y from +3.3% y/y in May, right on expectations and the slowest pace of increase in 10 months.
August gold (GCQ25) today is up +7.20 (+0.22%), and September silver (SIU25) is up +0.405 (+1.11%). Precious metals are moving higher today as US trade policy has led to economic uncertainty and is boosting safe-haven demand for precious metals. Also, central bank buying of gold is supporting prices after the People’s Bank of China (PBOC) purchased 70,000 MT of gold bullion in June, the eighth consecutive month the PBOC has added gold to its reserves.