Dollar Jumps on US Labor Market Strength

The dollar index (DXY00) today rallied to a 1.75-month high and is up by +0.35%.  The dollar recovered from early losses today and moved higher on the stronger-than-expected US May payroll report, bolstering speculation that the next Fed move will be an interest rate increase.  Today's stock slump has also boosted liquidity demand for the dollar.

The dollar also has safe-haven support as the US and Iran have made little progress in talks over an interim peace deal, with clashes between Israel and Hezbollah militants ongoing in Lebanon.  Iran insists on a ceasefire in Lebanon before accepting a US deal to extend the truce and reopen the Strait of Hormuz.  President Trump said Thursday that negotiations with Iran are in the "final" stages without elaborating, while Iran's Foreign Minister Abbas Araghchi earlier said there had been "no tangible progress" even though both sides continue to exchange messages via mediators.

US May nonfarm payrolls rose +172,000, stronger than expectations of +88,000.  Also, Apr nonfarm payrolls were revised upward to +179,000 from the previously reported +115,000.  The May unemployment rate remained unchanged at 4.3%, right on expectations.

US May average hourly earnings rose +0.3% m/m and +3.4% y/y, right on expectations.

The swaps markets are discounting the odds at 1% for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) fell to a 1.75-month low today and is down by -0.47%.  Today's stronger-than-expected US May payroll report has boosted the dollar and weighed on the euro.  Also, today's downward revision to Eurozone Q1 GDP is bearish for the euro.

Eurozone Q1 GDP was revised downward to -0.2% q/q and +0.3% y/y from the previously reported +0.1% q/q and +0.8% y/y.

The markets are discounting a +99% chance for a +25 bp rate hike by the ECB at the next policy meeting on June 11.

USD/JPY (^USDJPY) today is up by +0.13%.  The yen gave up early gains today and fell to a 5-week low against the dollar after T-note yields jumped on the stronger-than-expected US May payroll report. 

The yen initially moved higher today on stronger-than-expected Japanese economic news on Apr household spending and Apr labor cash earnings, hawkish factors for BOJ policy.  Also, the closer the yen falls to 160 per dollar, the greater the likelihood that Japanese authorities will intervene in forex markets to prop up the yen, as they have done several times recently when the yen fell below that level.

The Japan Apr leading index CI rose +0.5 to a 4.25-year high of 115.9, stronger than expectations of 114.5.

Japan Apr labor cash earnings rose +3.5% y/y, stronger than expectations of +3.1% y/y and the fastest pace of increase in 16 months.

Japan Apr household spending fell -0.5% y/y, a smaller decline than expectations of -1.5% y/y.

The markets are discounting a +94% chance of a +25 bp BOJ rate hike at the next policy meeting on June 16.

August COMEX gold (GCQ26) today is down -110.10 (-2.44%), and July COMEX silver (SIN26) is down -4.256 (-5.75%).

Gold and silver prices are plummeting today, with gold posting a 1-week low and silver posting a 1.75-month low.  Today's surge in the dollar index to a 1.75-month high is weighing on metals prices. Also, today's stronger-than-expected US May payroll report bolsters the outlook for a Fed rate hike, a bearish factor for precious metals prices.  In addition, higher global bond yields today are negative for precious metals.

Precious metals still have safe-haven support as the US and Iran have made little progress in talks over an interim peace deal, with clashes between Israel and Hezbollah militants ongoing in Lebanon.  Also, today's stock slump has boosted some safe-haven buying of precious metals.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 5.5-month low on March 31 after climbing to a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to a 9.75-month low on Thursday after rising to a 3.5-year high 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 +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has boosted its gold reserves.