The dollar index (DXY00) on Friday fell by -0.06%.  The dollar on Friday retreated from a 2-1/4 month high and posted modest losses.  A rally in stocks Friday curbed liquidity demand for the dollar.  Also, T-note yields fell back from their highest levels, which weighed on the dollar.  The dollar Friday initially moved higher as stronger-than-expected U.S. news on consumer spending and inflation bolstered the prospects of additional fed rate hikes. Also, weakness in the yen is positive for the dollar after the yen tumbled to a 6-month low against the dollar Friday. 

Friday’s U.S. economic news was better-than-expected and positive for the dollar.  Apr personal spending rose +0.8% m/m, stronger than expectations of +0.5% m/m.  Also, Apr capital goods orders nondefense ex-aircraft and parts, a proxy for capital spending, unexpectedly rose +1.4% m/m, stronger than expectations of a decline of -0.1% m/m and the biggest increase in 16 months.  In addition, the University of Michigan U.S. May consumer sentiment index was revised upward by +1.5 to 59.2, stronger than expectations of 58.0.

Friday’s comments from Cleveland Fed President Mester were hawkish for Fed policy and bullish for the dollar when she would not rule out a Fed rate hike at next month's FOMC meeting, saying, "The data that came in Friday suggests we have more work to do, and everything is on the table in June.  Inflation is still too high, and it's stubborn."

EUR/USD (^EURUSD) on Friday rose by +0.04%.  The euro Friday recovered from a 2-1/4 month low and posted modest gains as weakness in the dollar sparked short covering in EUR/USD. Also, hawkish comments from ECB Governing Council member Vujcic gave EUR/USD a boost when he said, "Inflation momentum in the Eurozone is still persistent, especially the core and food components."  However, gains in the euro were contained after a gauge of economic sentiment in Italy fell to a 5-month low. 

ECB Governing Council member Vujcic said, "Inflation momentum in the Eurozone is still persistent, especially the core and food components."

The Italy May economic sentiment index fell -1.7 to a 5-month low of 108.7.

USD/JPY (^USDJPY) on Friday rose by +0.41%.  The yen on Friday moved lower for a third straight session and dropped to a 6-month low against the dollar.  The jump in the 10-year T-note yield to a 2-1/2 month high Friday undercut the yen.  Also, signs of progress on raising the U.S. debt ceiling boosted stocks and curbed the safe-haven demand for the yen.

Japanese price reports Friday were hawkish for BOJ policy and bullish for the yen.  Japan Apr PPI services prices eased to +1.6% y/y from +1.7% y/y in Mar but were stronger than expectations of +1.4% y/y.  Also, Japan's Tokyo May CPI ex-fresh food and energy rose +3.9% y/y, the largest increase in 41 years.

June gold (GCM3) on Friday closed up +0.60 (+0.03%), and July silver (SIN23) closed up +0.450 (+1.96%).  Precious metals on Friday settled higher.  Signs of persistent inflation in the U.S. boosted demand for precious metals as a hedge against inflation after Friday’s news showed the Apr core PCE deflator rose more than expected.  Metals also garnered support after the dollar index Friday fell back from a 2-1/4 month high and turned lower.  However, gains in metals were limited as signs that U.S. lawmakers were close to a deal to raise the debt ceiling boosted stocks and reduced the safe-haven demand for precious metals prices.

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