Dollar Rises on Month- and Quarter-End Demand

The dollar index (DXY00) on Tuesday rose by +0.07%.  The dollar moved higher amid month- and quarter-end demand, with Tuesday being the last trading day of Q2.  Also, Tuesday’s decline in the yen to a 39-year low is dollar-supportive. In addition, higher T-note yields on Tuesday strengthened the dollar’s interest rate differentials.  Tuesday’s US economic news was mixed for the dollar, with the May JOLTS job openings unexpectedly rising to a 2-year high, but the June Conference Board consumer confidence index rising less than expected.

The US Apr S&P Cotality composite-20 home price index rose +1.14% y/y, stronger than expectations of +0.90% y/y.

The US Jun MNI Chicago PMI fell -6.0 to 56.7, a smaller decline than expectations of 55.1.

The US Jun Conference Board consumer confidence index rose +0.6 to 91.2, weaker than expectations of 94.4.

The US May JOLTS job openings unexpectedly increased by +9,000 to a 2-year high of 7.594 million, showing a stronger labor market than expectations of a decline to 7.296 million.

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

EUR/USD (^EURUSD)on Tuesday fell by -0.01%.  The euro was under slight pressure on Tuesday from a stronger dollar.  Also, Tuesday’s weaker-than-expected German June CPI report may keep the ECB from raising interest rates and weighed on the euro.  Losses in the euro were limited by Tuesday’s stronger-than-expected reports on German May retail sales and June unemployment.

German May retail sales rose +1.1% m/m, beating expectations of no change and the biggest increase in 11 months.

The German Jun unemployment change unexpectedly fell -1,000, showing a stronger labor market than expectations of a +5,000 increase.

German Jun CPI (EU harmonized) fell -0.2% m/m and rose +2.4% y/y, weaker than expectations of no change m/m and +2.5% y/y.

The markets are discounting a +5% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.

USD/JPY (^USDJPY) on Tuesday rose by +0.40%.  The yen remains under pressure and sank to a new 39-year low against the dollar on Tuesday.  Concerns that the BOJ is falling behind the curve in normalizing monetary policy are weighing on the yen after recent comments from BOJ Deputy Governor Uchida, who said the BOJ will assess the impact of rate hikes on the economy, signaling it will move at a glacial pace on policy tightening.  Also, Tuesday’s weaker-than-expected report on Japan’s industrial production was negative for the yen.

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 last Tuesday, 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 at a 39-year low, intervention risks have increased, as Japanese authorities have intervened in the forex market several times in the past when the yen reached that level. 

Japan May industrial production rose +0.5% m/m, weaker than expectations of +0.6% m/m.

The markets are discounting a +3% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.

August COMEX gold (GCQ26) on Tuesday closed down -0.40 (-0.01%), and July COMEX silver (SIN26) closed up +1.302 (+2.24%).

Gold and silver prices settled mixed on Tuesday, with gold posting a 7.75-month low.  Tuesday’s dollar strength was bearish for metals prices.  Also, Tuesday’s rally in stocks curbed safe-haven demand for precious metals.  In addition, liquidation of long gold positions by funds is negative for gold prices after long holdings in gold ETFs fell to a 9-month low on Monday.  Finally, higher T-note yields on Tuesday were negative for precious metals prices.

Precious metals are finding safe-haven support amid tensions in the Middle East, as Iran insists it controls traffic through the Strait of Hormuz, a move opposed by the US, Europe, and Gulf Arab nations.  Also, Tuesday’s weaker-than-expected German June CPI report may persuade the ECB to pursue easier monetary policy, a bullish factor for precious metals.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9-month low on Monday, after reaching a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to an 11-month low last Thursday 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.