Dollar Gains and Gold Falls as Speculation of Aggressive Fed Easing Subsides

The dollar index (DXY00) Tuesday finished up by +0.29% due to strength in T-note yields.  Also, reduced expectations of aggressive Fed rate cuts boosted the dollar on positive carryover from Monday when Chicago Fed President Goolsbee said last month’s job numbers “came in weaker than expected but are not looking yet like a recession.”

US trade news Tuesday was bearish for the dollar after the US June trade deficit shrank to -$73.1 billion from a revised -$75.1 billion in May, a larger deficit than expectations of -$72.5 billion.

The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 75% for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) Tuesday fell by -0.24%.  The euro was under pressure Tuesday from a rebound in the dollar. Also, a larger-than-expected decline in Eurozone June retail sales was bearish for the euro.  The euro some saw support after German June factory orders posted their biggest increase in 6 months.

Eurozone June retail sales fell -0.3% m/m, weaker than expectations of -0.1% m/m and the biggest decline in 6 months.

German June factory orders rose +3.9% m/m, stronger than expectations of +0.5% m/m and the largest increase in 6 months.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 94% for the September 12 meeting.

USD/JPY (^USDJPY) Tuesday rose by +0.60%.  Long liquidation pressure weighed on the yen Tuesday on news that the Bank of Japan, the Ministry of Finance, and the Financial Services Agency met in Tokyo to discuss international markets after the yen soared to a 7-month high on Monday.  The yen was also under pressure from Tuesday’s news that Japan’s June household spending fell more than expected.  In addition, Tuesday’s +10% surge in the Nikkei Stock Index curbed safe-haven demand for the yen.  Losses in the yen were limited after Japan June labor cash earnings rose more than expected, a hawkish factor for BOJ policy.

Japan June household spending fell -1.4% y/y, weaker than expectations of -0.8% y/y.

Japan June labor cash earnings rose +4.5% y/y, stronger than expectations of +2.4% y/y and the biggest increase in 27 years.

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +33% for the October 30-31 meeting.

December gold (GCZ24) Tuesday closed down -12.80 (-0.52%), and September silver (SIU24) closed up +0.009 (+0.03%).  Precious metals Tuesday settled mixed.  Tuesday’s strength in the dollar was bearish for metals.  Also, a sharp rebound in stocks Tuesday reduced the safe-haven demand for precious metals.  In addition, higher T-note yields Tuesday weighed on precious metals prices.

Precious metals prices have underlying support from geopolitical risks in the Middle East after Iran’s leader Ayatollah Ali Khamenei ordered a strike on Israel in response to the assassination of a Hamas political leader in Tehran.  Also, fund demand for gold is supportive for prices after long gold positions in ETFs rose to a 5-1/2 month high on Monday.  Silver also garnered support from Tuesday’s news that German June factory orders posted their biggest increase in 6 months, a positive factor for industrial metals demand. 

More Precious Metal News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.