The dollar index (DXY00) is down by -0.03% today, holding just above Thursday’s 3.25-month low. Strength in stocks today has reduced demand for dollar liquidity. The dollar is still weighed down by negative carryover from Wednesday, when the US Treasury boosted liquidity and announced plans to increase buybacks of long-dated bonds. Today’s US economic news was mixed for the dollar, with the Aug S&P manufacturing PMI falling more than expected, but the Aug S&P services PMI rising more than expected.
The US Aug S&P manufacturing PMI fell -0.7 to 53.2, weaker than expectations of no change at 53.9, but the Aug S&P services PMI unexpectedly rose +2.8 to 56.8, stronger than expectations of a decline to 54.0 and the fastest pace of expansion in 4.5-years.
The markets are discounting a 39% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) matched Thursday’s 3.25-month high today and is up by +0.01%. Signs of strength in the European economy are supporting the euro today after the Eurozone Aug manufacturing and composite PMI reports expanded more than expected. The euro also found support today after the Eurozone Aug consumer confidence index unexpectedly rose to a 6-month high. Euro gains are limited after ECB inflation expectations eased, a dovish factor for ECB policy.
The Eurozone Aug S&P manufacturing PMI unexpectedly rose +0.9 to 52.8, stronger than expectations of a decline to 51.8 and the fastest pace of expansion in 4.25 years. Also, the Aug composite PMI unexpectedly rose +0.1 to 52.1, stronger than expectations of a decline to 51.7.
ECB July 1-year CPI expectations eased to 2.9% from 3.0% in June. The 3-year July CPI expectations eased to 2.7% from 2.8% in June.
The Eurozone Aug consumer confidence index unexpectedly rose +0.4 to a 6-month high of -15.5, stronger than expectations of a decline to -16.0.
The markets are discounting a 94% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) is down by -0.14% today. The yen is climbing today on signs of strength in Japan’s economy after the Japan Aug S&P manufacturing PMI matched its strongest pace of expansion in 8,5 years. Also, the pace of inflation picked up in Japan last month, a hawkish factor for BOJ policy. Higher T-note yields today are limiting the upside in the yen.
The Japan Aug S&P manufacturing PMI rose +0.6 to 55.1 and matched the April reading as the strongest pace of expansion in 8.5 years. The Aug S&P services PMI rose +1.1 to 52.3, the strongest pace of expansion in 5 months.
Japan July national CPI rose +1.9% y/y from +1.6% y/y in June, right on expectations. July national CPI ex-fresh food and energy also rose +1.9% y/y from +1.7% in June, right on expectations.
The yen has underlying support from increased expectations of a BOJ rate hike after Bloomberg reported last Thursday that Japanese Prime Minister Sanae Takaichi's government supports a BOJ rate hike in either September or October. The government favors a rate hike to support the yen and prevent inflationary pressures stemming from the weak yen. Finally, the yen has ongoing support from the recent coordinated US-Japan intervention and fears that further intervention might be forthcoming if the yen remains weak.
The markets are discounting an 82% chance of a +25 bp BOJ rate hike at the September 18 policy meeting. The yen continues to suffer from weak interest rate differentials, with the BOJ's current policy rate of 1.00% well below the Fed's federal funds rate target range of 3.50%-3.75%.
October COMEX gold (GCV26) is up +73.90 (+1.63%) today, and September COMEX silver (SIU26) is up +1.335 (+1.96%).
Precious metals prices added to this week’s sharp gains today, with gold posting a 3.25-month high and silver posting a 2-month high. Today’s weaker dollar supports metals prices. Precious metals also have carryover support from Wednesday, when the US Treasury boosted its buybacks of longer-dated US government bonds, bolstering concerns over dollar debasement and increasing demand for precious metals as a store of value.
Signs of strength in global manufacturing activity signal strong demand for industrial metals, a bullish factor for silver prices. The Eurozone Aug S&P manufacturing PMI unexpectedly expanded at its fastest pace of expansion in 4.25 years, and Japan Aug S&P manufacturing PMI matched April’s reading as the strongest pace of expansion in 8.5 years.
Recent fund support for precious metals is bullish for prices, as long holdings in gold ETFs climbed to a 2.5-month high today. Long holdings in silver ETFs also rose to a 4-month high on Wednesday.
Strong central bank demand for gold is supportive of gold prices, following the Aug 7 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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