The dollar index (DXY00) on Thursday fell by -0.30%. The dollar index Thursday consolidated mildly below Wednesday’s 20-year high. Strength in the euro Thursday sparked long liquidation pressure in the dollar. The dollar has underlying support from higher T-note yields and hawkish Fed comments.
U.S. economic news Thursday was mainly supportive of the dollar. Weekly initial unemployment claims unexpectedly fell -16,000 to a 5-month low of 193,000, showing a stronger labor market than expectations of an increase to 215,000.
Meanwhile, U.S. Q2 GDP was left unrevised at -0.6% (q/q annualized). However, Q2 personal consumption was revised upward to +2.0% from +1.5%, and the Q2 core PCE deflator was revised upward to +4.7% q/q from 4.4% q/q.
Hawkish Fed comments Thursday were bullish for the dollar. St. Louis Fed President Bullard said the Fed expects to tighten policy further in the coming months, and the markets have understood that. He added, "if you look at the Fed's dot plot, it does look like the FOMC is expecting a fair amount of additional moves this year. I think that was digested by markets and does seem to be the right interpretation."
Also, Cleveland Fed President Mester said it appears that U.S. labor demand is still outpacing supply and interest rates are still not in restrictive territory. She added that "real interest rates, judged by the expectations over the next year of inflation, have to be in positive territory and held there for a time."
EUR/USD (^EURUSD) on Thursday rose by +0.66%. EUR/USD Thursday recovered from overnight losses and moved moderately higher on hawkish ECB comments that signal most policymakers favor a +75 bp rate hike at the October ECB meeting. Also, record high German consumer prices boosted German bund yields, strengthening the euro’s interest rate differentials. EUR/USD Thursday initially fell after a gauge of Eurozone economic confidence dropped to a 1-3/4 year low and after Germany's leading research institutes cut their 2022 and 2023 German GDP forecasts.
Hawkish ECB comments Thursday were bullish for the euro. ECB Governing Council member Rehn said the ECB needs a "significant" rate increase at its meeting in October as small rate hike steps "aren't enough" in the current situation. Also, ECB Governing Council member Simkus said he "wouldn't be surprised to see even higher inflation for September for the Eurozone," and a "75 bp rate hike" would be his choice for the ECB's October meeting.
Eurozone Sep economic confidence fell -3.6 to a 1-3/4 year low of 93.7, weaker than expectations of 95.0.
German Sep CPI (EU harmonized) rose a record +10.9% y/y, stronger than expectations of +10.2% y/y.
Germany's leading research institutes cut their German 2022 GDP forecast to 1.4% from an April forecast of 2.7% and cut their German 2023 GDP forecast to -0.4% contraction from an April forecast of a 3.1% expansion due to the drastic increase in energy costs.
USD/JPY (^USDJPY) on Thursday rose by +0.15%. The yen Thursday posted modest losses on higher T-note yields. The yen was also under pressure Thursday on concern the BOJ may ramp up its bond purchases after Mizuho Securities said the BOJ is likely to raise its purchase amounts of super-long bonds in the October-December quarter when it announces the plan Friday.
October gold (GCV22) Thursday closed down -1.80 (-0.11%), and December silver (SIZ22) closed down -0.168 (-0.89%). Gold and silver Thursday posted moderate losses. Higher global bond yields Thursday weighed on gold prices. Also, continued fund liquidation of gold is bearish for prices as long positions in gold ETF’s dropped to a 2-1/4 year low Wednesday. Silver prices were under pressure on industrial metals demand concerns after Germany's leading research institutes cut their German 2022 and 2023 GDP forecasts. However, losses in gold were limited by news that Germany’s Sep CPI jumped to a record high, which boosted demand for gold as an inflation hedge.
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