Dollar Falls on Dovish Jump in US Jobless Claims

Rich Asplund - Barchart - Thu May 9, 9:40AM CDT

The dollar index (DXY00) this morning is down by -0.18%. The dollar gave up an early advance today and turned lower after US weekly jobless claims rose more than expected to an 8-1/2 month high, a dovish factor for Fed policy. The British pound (^GBPUSD) today fell to a 2-week low after BOE Governor Baily signaled the BOE may cut interest rates sharper than the markets expect.

US weekly initial unemployment claims rose +22,000 to an 8-1/2 month high of 231,000, showing a weaker labor market than expectations of 212,000.

The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 36% for the following meeting on July 30-31.

EUR/USD (^EURUSD) today is up by +0.19%. The euro rebounded from overnight losses and is mildly higher. Today’s jump in US weekly jobless claims to an 8-1/2 month high weighed on the dollar and sparked short covering in the euro. Also, hawkish comments from ECB Vice President Guindos boosted the euro when he said he sees Europe’s economic growth “gaining momentum,” and the ECB won’t commit to what will happen beyond its planed June rate cut.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for its next meeting on June 6.

USD/JPY (^USDJPY) today is up by +0.05%. The yen remains under pressure on speculation Japanese authorities won’t intervene again in the forex market anytime soon to support the yen after Masato Kanda, Japan’s top currency official, said Tuesday that the government doesn’t need to intervene in the forex market if market movements are orderly. The yen recovered from its worst levels today after the summary of the Apr 25-26 BOJ meeting showed BOJ board members were considering the potential for faster rate hikes if the weak yen worsened the inflation outlook.

Wage pressures in Japan are falling and are dovish for BOJ policy as Mar labor cash earnings rose +0.6% y/y, weaker than expectations of +1.4% y/y. Also, Mar real cash earnings fell -2.5% y/y, weaker than expectations of -1.4% y/y and the largest decline in 4 months.

The Japan Mar leading index CI fell -0.7 to 111.4, a smaller decline than expectations of 111.2.

The summary of the April 25-26 BOJ policy meeting shows board members are looking at the impact of yen weakness on inflation and the potential for faster interest rate hikes as a result. The summary said, "If underlying inflation continues to deviate upward from the baseline scenario against the backdrop of a weaker yen, it is quite possible that the pace of monetary policy normalization will increase."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 38% for the June 14 meeting.

June gold (GCM4) this morning is up +21.3 (+0.92%), and July silver (SIN24) is up +0.834 (+3.02%). Precious metals prices today are moderately higher, with gold posting a 1-week high and silver climbing to a 2-week high. A weaker dollar today is supportive for metals prices. Precious metals also garnered support from today’s US initial unemployment report that showed jobless claims rose to an 8-1/2 month high, a sign of weakness in the labor market that could push the Fed to cut interest rates. Also, ongoing Middle East tensions continue to support safe-haven demand for precious metals. Gold prices climbed on increased demand as a store of value today when BOE Governor Baily signaled the BOE may cut interest rates sharper than the markets expects. Silver prices rose today on signs of stronger industrial metals demand in China after Chinese trade news showed China’s Apr exports and imports rose more than expected.

Gains in precious metals are limited after the summary of the April 25-26 BOJ policy meeting showed that BOJ board members are considering a faster pace of interest rate hikes if the weak yen worsens the inflation outlook. Also, fund liquidation of gold holdings is negative for gold prices after long gold holdings in ETFs fell to a 4-1/2 year low Wednesday.

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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.