Dollar Slips on Lower Bond Yields and Strength in Stocks

The dollar index (DXY00) Friday fell by -0.07%.  Friday’s dovish comments from Boston Fed President Collins weighed on the dollar when she said she sees Fed rate cuts “soon” if inflation keeps falling.  Losses in the dollar are limited as weakness in stocks boosted some liquidity demand for the dollar.

Boston Fed President Collins said, “If the data continue the way that I expect, I do believe that it will be appropriate soon for the FOMC to begin adjusting policy and easing how restrictive the policy is.”

The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 56% for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) Friday was unchanged.  A weaker dollar on Friday was supportive of the euro.  Friday’s rally in European nat-gas prices to an 8-month high may weigh on Eurozone economic prospects and undercut the euro. 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for the September 12 meeting.

USD/JPY (^USDJPY) Friday fell by -0.44%.  The yen rose Friday against the dollar as T-note yields fell, a bullish factor for the yen.  Also, the continued unwinding of yen-funded carry trades is boosting the yen as short positions in the yen are being covered after the BOJ unexpectedly hiked interest rates last week. 

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +17% for the October 30-31 meeting.

December gold (GCZ24) Friday closed up +10.10 (+0.41%), and September silver (SIU24) closed down -0.018 (-0.07%).  Precious metals Friday settled mixed.  A weaker dollar on Friday was supportive of metals.  Also, a decline in global bond yields on Friday was bullish for precious metals.  In addition, geopolitical risks in the Middle East are supportive of safe-haven demand for precious metals as Iran vowed a retaliatory strike against Israel in response to the assassination of a Hamas political leader in Tehran last week.  Gold also found support Friday as a store of value after Boston Fed President Collins said the Fed will cut interest rates “soon” if inflation keeps falling.

Strength in stocks on Friday curbed some safe-haven demand for precious metals.  Silver prices were also undercut Friday by concern about weak industrial metals demand in China after LME copper inventories on Wednesday climbed to a nearly 5-year high of 294,750 MT, a sign of weak demand.

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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.

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