Dollar Tumbles after UK and Swiss Rate Hikes

The dollar index (DXY00) on Thursday fell sharply by -1.530 (-1.45%).  The dollar was under pressure Thursday from strength in EUR/USD and GBP/USD after the Swiss and UK central banks raised interest rates.  Losses in the dollar accelerated on Thursday’s weaker-than-expected U.S. economic data that was bearish for the dollar. 

U.S. weekly initial unemployment claims fell -3,000 to 229,000, showing a weaker labor market than expectations of a decline to 217,000.

The U.S. Jun Philadelphia Fed business outlook survey unexpectedly fell -5.9 to a 2-year low of -3.3, weaker than expectations of an increase to 5.0.

U.S. May housing starts fell -14.4% m/m to a 13-month low of 1.549 million, weaker than expectations of 1.693 million.  U.S. May building permits, a proxy for future construction, fell -7.0% m/m to an 8-month low of 1.695 million, weaker than expectations of 1.778 million.

EUR/USD (^EURUSD) on Thursday rose by +0.0131 (+1.25%).  The euro Thursday rallied moderately on a jump in European government bond yields.  The 10-year German bund yield rose to a new 8-year high Thursday, strengthening the euro’s interest rate differentials.  EUR/USD raced to its high Thursday on comments from ECB President Lagarde, who said the ECB plans to limit bond spreads and address irrational moves. 

ECB President Lagarde told Eurozone finance ministers Thursday that the ECB will implement a new mechanism that may be triggered if European bond spreads widen beyond certain thresholds or if market movements exceed a certain speed.  She said the ECB's "new anti-fragmentation instrument" is intended to prevent irrational market movements from putting pressure on the finances of individual Eurozone nations. 

Eurozone May new car registrations fell -11.2% y/y, the eleventh consecutive month registrations have declined. 

The Bank of England (BOE) raised its benchmark lending rate by 25 bp to 1.25% as expected and said it would "act forcefully" on inflation if necessary.

The Swiss National Bank (SNB) unexpectedly raised its policy rate by 50 bp to -0.25%, its first increase in 15 years, and said "it cannot be ruled out that further increases in the SNB rate will be necessary in the foreseeable future to stabilize inflation."

USD/JPY (^USDJPY) Thursday fell -1.91 (-1.43%).  USD/JPY extended Wednesday’s losses down to a 1-week low.   The yen strengthened Thursday on short-covering ahead of Friday’s Bank of Japan (BOJ) meeting. After Thursday’s surprise action by the SNB to raise interest rates, there is growing speculation the BOJ will join global peers and announce monetary tightening.  Thursday’s Japanese trade data was negative for the yen after Japan May exports rose +15.8% y/y, weaker than expectations of +16.1% y/y.

August gold (GCQ22) Thursday closed up +30.3 (+1.67%), and July silver closed up +0.465 (+2.17%).  Precious metals Thursday moved higher on a weaker dollar.  Also, a slump in the S&P 500 to a 1-1/2 year low Thursday sparked safe-haven demand for precious metals.  Gains in gold were limited by higher global bond yields and by rate highs in the UK and Switzerland.

The dollar and gold have continued safe-haven support from the negative impact of the worldwide spread of the omicron Covid variant on the global economic recovery.  China has been slowly dropping Covid lockdowns, but elevated Covid cases may keep the country from fully reopening.  Beijing reported more than 50 Covid cases Wednesday for the fifth day in a row, and Shanghai said it will arrange a round of mass Covid testing every weekend until the end of July.  In the U.S., the 7-day average of new Covid infections last Monday rose to a 3-3/4 month high of 118,778.