Dollar Slightly Higher on Hawkish Fed Comments
The dollar index (DXY00) on Thursday rose by +0.036 (+0.03%). The dollar Thursday erased early losses and moved slightly higher but remained below Wednesday’s 20-year high. The dollar found support Thursday on hawkish comments from Fed Governor Waller and St. Louis Fed President Bullard, who said they support a 75 bp Fed rate hike at the July FOMC meeting.
The dollar Thursday initially posted modest losses on Thursday’s negative U.S. economic data on weekly jobless claims and the May trade deficit. Also, strength in the British pound Thursday weighed on the dollar early as sterling (^GBPUSD) jumped after Boris Johnson announced that he would resign as UK prime minister.
Thursday’s U.S. economic data was bearish for the dollar. Weekly initial unemployment claims unexpectedly rose +4,000 to a 5-1/2 month high of 235,000, showing a weaker labor market than expectations of a decline to 230,000. Also, the May trade deficit of -$85.5 billion was wider than expectations of -$84.7 billion, which was negative for U.S. GDP.
St. Louis Fed President Bullard said recession predictions are not reliable and that some people are mistaking slower growth for rising recession risks. He added that a 75 bp rate hike at the July FOMC meeting "would make a lot of sense."
Fed Governor Waller said he supports a 75 bp Fed rate hike in July and a 50 bp rate hike in September. He added that the Fed's job is to deliver price stability, no excuses, and there's "not a chance" that he would be OK with 3% inflation.
EUR/USD (^EURUSD) on Thursday fell by -0.0022 (-0.22%) and posted a fresh 20-year low. EUR/USD remains under pressure on concern the ECB will be slow to tighten monetary policy, which has weakened the euro’s interest rate differentials. Thursday’s weaker-than-expected German May industrial production data was also bearish for EUR/USD. In addition, hawkish Fed comments Thursday boosted T-note yields and further weakened the euro’s interest rate differentials.
German May industrial production rose +0.2% m/m, weaker than expectations of+0.4% m/m.
USD/JPY (^USDJPY) on Thursday rose by +0.06 (+0.04%). USD/JPY Thursday recovered from early losses and moved slightly higher. Higher T-note yields Thursday weighed on the yen. Also, a rally in global equity markets today reduced safe-haven demand for the yen.
August gold (GCQ22) Thursday closed up +3.2 (+0.18%), and September silver (SIU22) closed up +0.029 (+0.15%). Precious metals Thursday closed slightly higher. Early weakness in the dollar index Thursday sparked some short-covering in gold. Silver also garnered support Thursday after China said it was considering a $220 billion infrastructure stimulus plan, which would boost demand for industrial metals. Gains in gold Thursday were limited by higher global bond yields.
The dollar and gold have continued safe-haven support from the negative impact of the worldwide spread of the omicron Covid variant on the global economic recovery. China has been slowly dropping Covid lockdowns, but elevated Covid cases may keep the country from fully reopening. China has launched mass testing for nine districts in Shanghai after detecting new Covid infections, and 66 new Covid infections were reported in Jiangsu province Tuesday, the second-biggest province for China's economic output. Also, the 7-day average of new U.S. Covid infections rose to a 3-1/2 week high of 119,644 last Friday.
More Precious Metal News from Barchart
Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.
