U.S. Dollar/Swiss Franc Futures Market News and Commentary
The dollar index (DXY00) on Friday rose +0.379 (+0.39%). Sep euro-fx futures (E6U9) closed down -0.0049 (-0.43%), and EUR/USD (^EURUSD) fell -0.0059 (-0.52%). Sep yen futures (J6U9) closed down -0.27 (-0.28%), and USD/JPY (^USDJPY) rose +0.40 (+0.37%). The dollar index moved higher Friday on reduced speculation about a 50 bp FOMC rate cut at its July 30-31 meeting and also on some US/Chinese trade optimism after US/Chinese top officials held a conference call late Thursday. The New York Fed late Thursday walked back Thursday's comment from New York Fed President Williams that "it pays to act quickly to lower rates at the first sign of economic distress" by saying that the comment was academic talk based on 20 years of research and was not about potential Fed policy actions. That curbed speculation the Fed may cut rates by 50 bp at the July 30-31 FOMC meeting. The dollar added to its gains Friday after St. Louis Fed President Bullard said, "a 25 bp rate cut by the Fed would be appropriate as the current situation doesn't warrant a larger rate cut." EUR/USD was undercut by Friday's decline in the German June PPI to a 2-1/2 year low of +1.2% y/y (vs expectations of +1.5%), which sent the 10-year German bund yield down to a 1-week low of -0.330% and hurt the euro's interest rate differentials. USD/JPY rose after Friday's data showed that Japan June national CPI rose by only +0.6% y/y, the smallest increase in nearly 2 years, which may push the BOJ to boost yen-negative stimulus measures. Big Picture Dollar Factors: Bullish factors for the dollar index include (1) the Fed's balance sheet drawdown program through September, (2) relative strength in the U.S. economy, and (3) the repatriation of U.S. corporate overseas cash under the 2018 tax law. Bearish factors include (1) market expectations of a 100% chance of a 25 bp rate cut at the July 30-31 FOMC meeting, (2) the recent plunge in the 10-year T-note yield to a 2-1/2 year low of 1.938%, which weakened the dollar's interest rate differentials, (3) trade tensions and Washington political uncertainty, and (4) the wide U.S. budget and current account deficits. Bearish factors for EUR/USD include (1) the ECB's promise to leave interest rates unchanged at least through mid-2020, (2) weak Eurozone economic growth, (3) the slump in the 10-year bund yield to a record low of -0.409%, which undercut the euro's interest rate differentials, and (4) Brexit risks.