The dollar index (DXY00) fell by -0.17% on Wednesday. The dollar fell on Wednesday after the S&P 500 climbed to a new record high, reducing demand for dollar liquidity. Also, Wednesday’s weaker-than-expected reports on July ADP employment and July ISM services were bearish for the dollar. Losses in the dollar are limited on hawkish comments from Kansas City Fed President Jeff Schmid and Minneapolis Fed President Neel Kashkari, who said tighter Fed policy was needed to reduce inflation.
The US July ADP employment change rose by +44,000, weaker than expectations of +65,000.
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The US July ISM services index rose +0.1 to 54.1, weaker than expectations of 54.5. The July ISM services price paid sub-index unexpectedly rose +2.6 to 70.3, stronger than expectations of a decline to 65.0.
Tuesday evening, Kansas City Fed President Jeff Schmid said, “Given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive. As such, I believe that bringing inflation down to the Fed’s 2% objective will require tighter policy.”
Minneapolis Fed President Neel Kashkari said that the Fed should start to raise interest rates incrementally right now to curb inflation that remains too high.
The markets are discounting a 54% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) rose by +0.16% on Wednesday. The euro moved higher on Wednesday amid a weak dollar. The euro also gained support from Wednesday’s report showing the Eurozone July S&P composite PMI was revised higher. Gains in the euro were limited after the Eurozone June PPI eased as expected, a dovish factor for ECB policy.
The Eurozone July S&P composite PMI was revised upward by +0.1 to 52.0 from the previously reported 51.9.
Eurozone June PPI eased to 4.6% y/y from 5.9% y/y in May, right on expectations.
The markets are discounting an 81% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) fell by -0.02% on Wednesday. The yen found modest support on Wednesday from the hawkish minutes of the BOJ’s June 15-16 policy meeting, where most board members saw upside risks to underlying inflation and that the BOJ should aim to keep raising the benchmark rate if the economy and prices meet its outlook. The yen also has carryover support from Tuesday when US Treasury Secretary Scott Bessent signaled the US will continue joint intervention in the forex market in support of the yen, saying, “We will do whatever it takes” to support Japan. Gains in the yen are limited after the Japan July S&P services PMI was revised downward.
The yen continues to suffer from weak interest rate differentials, with markets discounting a 45% chance of a +25 bp BOJ rate hike at the September 18 policy meeting. The BOJ’s current policy rate of 1.00% is well below the Fed’s federal funds rate target of 3.50%-3.75%.
October COMEX gold (GCV26) on Wednesday closed up +151.40 (+3.67%), and September COMEX silver (SIU26) closed up +2.043 (+3.39%).
Gold and silver prices rallied sharply higher for a second day on Wednesday, with gold soaring to a 7-week high and silver posting a 1-month high. Wednesday’s weaker dollar was bullish for metals prices. Precious metals also rose on Wednesday on the improved prospects for the reopening of the Strait of Hormuz after Axios reported that the US, Iran and Oman were nearing an interim agreement to reopen the waterway. The reopening of the strait would boost global oil supplies and pressure oil prices, thus easing inflation expectations and reducing the chances of tighter monetary policies by the world’s central banks.
Silver prices also have carryover support from Wednesday’s rally in copper prices to a 2-month high. Copper prices are soaring as LME copper inventories dropped to a 5-month low on an increase in US copper imports. More than 200,000 MT of copper arrived at US ports in July, the largest monthly volume in data going back to 2014, as US importers hoard copper ahead of President Trump’s decision on tariffs on refined copper imports. The influx of US copper imports has tightened supplies of copper to the rest of the world.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 10-month low last Monday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 1-year low on July 14 from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +480,000 ounces to 75.44 million troy ounces in June, the twentieth consecutive month the PBOC boosted its gold reserves.
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. This article was originally published on Barchart.com