Dollar Climbs as Stocks Slump

The dollar index (DXY00) climbed to a 13-month high today and is up by +0.33%.  The dollar is finding support from today's plunge in equity markets, which is boosting liquidity demand for the dollar.  The dollar also has carryover support from last Wednesday, when the FOMC projected higher interest rates later this year.  Today's US economic news was mixed for the dollar as the Jun S&P manufacturing PMI unexpectedly increased, but the Jun Richmond Fed manufacturing survey of current conditions fell more than expected.

The US Jun S&P manufacturing PMI unexpectedly rose +0.6 to 55.7, stronger than expectations of a decline to 54.6 and the strongest pace of expansion in 4 years.

The US Jun Richmond Fed manufacturing survey of current conditions fell -9 to 4, weaker than the 8 expected.

The swaps markets are discounting the odds at 34% for a +25 bp rate cut hike at the next FOMC meeting on July 28-29.

EUR/USD (^EURUSD) tumbled to a 1-year low today and is down -0.43%.  The euro extended Monday's losses on negative carryover from dovish comments by ECB President Lagarde, which reduced the chances of additional ECB rate hikes, as she said she sees no need for a more forceful ECB response to the US-Iran war.  Today's Eurozone PMI reports were mixed for the euro, with the manufacturing PMI weaker than expected but the composite PMI stronger than expected.  Losses in the euro are limited due to hawkish comments from ECB Chief Economist Philip Lane, who said ECB Officials face the risk that inflation will hover above their goal "for quite some time."

The Eurozone Jun S&P manufacturing PMI fell -0.3 to 51.3, weaker than expectations of no change at 51.6.  However, the Jun S&P composite PMI rose +1.0 to 49.5, stronger than expectations of 49.2.

Eurozone May new car registrations rose +3.2% y/y to 955,000 units, the fourth consecutive monthly increase.

ECB Chief Economist Philip Lane said ECB Officials face the risk that inflation will hover above their goal "for quite some time."

The markets are discounting a +9% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.

USD/JPY (^USDJPY) today is down by -0.02%.  The yen is slightly higher today on signs of strength in Japan's economy, following the June S&P manufacturing and services PMIs, which expanded.  Lower T-note yields today are also supportive of the yen.

Gains in the yen are limited amid concerns that the BOJ is falling behind the curve in normalizing monetary policy.  Last week, BOJ Deputy Governor Uchida said that the BOJ will assess the impact of rate hikes on the economy, signaling it will move at a glacial pace on policy tightening. 

The risk of intervention in currency markets to support the yen is rising after Japanese Finance Minister Satsuki Katayama said she spoke with US Treasury Secretary Scott Bessent today, and they agreed to take "bold" steps on currencies if needed, and that the nations are increasingly "aligned" on foreign-exchange policy.  With the yen firmly above 160 per dollar, intervention risks have increased, as Japanese authorities have intervened in the forex market several times in the past when the yen reached that level. 

The Japan Jun S&P manufacturing PMI rose +0.4 to 54.9.  The Jun S&P services PMI rose +1.8 to 51.8.

The markets are discounting a +4% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.

August COMEX gold (GCQ26) today is down -48.50 (-1.15%), and July COMEX silver (SIN26) is down -3.168 (-4.83%).

Gold and silver prices sank to 1.5-week lows today and are sharply lower.  Today's rally in the dollar index to a 13-month high is bearish for metals. Also, today's sharp selloff in equity markets has fueled the liquidation of long precious metals holdings as investors seek funds to cover margin calls.  In addition, hawkish comments today from ECB Chief Economist Philip Lane are weighing on precious metals when he said ECB Officials face the risk that inflation will hover above their goal "for quite some time." 

Precious metals found some support from today's plunge in equity markets, which has boosted safe-haven demand for the metals.  Also, today's decline in WTI crude oil prices to a 3.5-month low has eased inflation expectations and could prompt global central banks to ease monetary policy, a bullish factor for precious metals.  In addition, precious metals have safe-haven demand amid political uncertainty in the UK following Keir Starmer's announcement that he would step down as Britain's prime minister.   

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 7.5-month low last Wednesday, after reaching a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to an 11-month low last Friday from the 3.5-year high posted 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 +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC boosted its gold reserves.