The dollar index (DXY00) dropped to a 7-week low on Friday and finished down -0.41%. The dollar tumbled on Friday after the US July payroll report showed an unexpected decline in nonfarm payrolls and a smaller-than-expected increase in average hourly earnings, dovish factors for Fed policy. Also, Friday’s rally in stocks curbed liquidity demand for the dollar. The payroll report cut the chances of a Fed rate hike at next month’s FOMC meeting to 44% from 58% before the report.
US July nonfarm payrolls unexpectedly fell by -23,000, weaker than expectations of +80,000 and the first decline in 5 months. June payrolls were revised downward to show a +20,000 increase from the previously reported +57,000. The July unemployment rate unexpectedly fell -0.1 to a 13-month low of 4.1%, showing a stronger labor market than expectations of no change at 4.2%.
US July average hourly earnings rose +0.1% m/m and +3.2% y/y, weaker than expectations of +0.3% m/m and +3.5% y/y.
US June consumer credit rose $14.173 billion, stronger than expectations of $11.850 billion.
The dollar found some support from Thursday evening’s comments from St. Louis Fed President Alberto Musalem, who said policymakers cannot afford to tolerate higher inflation and "it is crucial that monetary policy put a meaningful restraint on underlying inflation, rather than tolerating somewhat higher inflation today to pursue productivity growth tomorrow."
The markets are discounting a 44% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) rallied to a 7-week high on Friday and finished up by +0.36%. The euro is climbing today after the dollar tumbled on the weaker-than-expected US July payroll report. The euro also found support today on better-than-expected German trade news that showed June exports and imports rose more than expected.
German June industrial production rose +0.2% m/m, right on expectations.
German trade news was better than expected. German June exports rose +0.9% m/m, stronger than expectations of +0.5% m/m. Also, June imports rose +4.4% m/m, stronger than expectations of +2.0% m/m.
The markets are discounting an 85% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) fell by -0.57% on Friday. The yen jumped on Friday after the dollar retreated on the weaker-than-expected US July payroll report. Also, lower T-note yields on Friday supported the yen. The yen fell from its best level after crude oil prices moved higher, which is bearish for Japan’s economy and the yen as Japan imports more than 90% of its energy.
The yen has near-term support amid signs the US would continue joint intervention in the forex market in support of the yen when Treasury Secretary Bessent said this week that the US "will not hesitate" to repeat action in the forex market to support the yen if needed.
The yen continues to suffer from weak interest rate differentials, with markets discounting a 66% chance of a +25 bp BOJ rate hike at the September 18 policy meeting. The BOJ’s current policy rate of 1.00% is well below the Fed’s federal funds rate target of 3.50%-3.75%.
October COMEX gold (GCV26) closed up +99.10 (+2.32%) on Friday, and September COMEX silver (SIU26) closed up +1.893 (+3.07%).
Gold and silver prices soared on Friday, with gold posting a 7-week high and silver posting a 6-week high. Precious metals rallied sharply on Friday as the US July payroll report knocked the dollar down to a 7-week low. The report showed an unexpected decline in nonfarm payrolls and a smaller-than-expected increase in average hourly earnings, which could potentially persuade the Fed to ease monetary policy, a bullish factor for precious metals. Gold prices also found support after China’s central bank, the PBOC, added gold to its reserves last month by +640,000 ounces, the largest increase in more than 2.5-years.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 10-month low last Monday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 1-year low on July 14 from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following Friday’s news that bullion held in China’s PBOC reserves rose by +640,000 ounces to 76.08 million troy ounces in July, the twenty-first consecutive month the PBOC boosted its gold reserves.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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