The dollar index (DXY00) on Friday rose by -1.028 (+0.99%). Higher T-note yields Friday supported the dollar. The dollar also gained as the yen tumbled after the BOJ maintained its ultra-easy policies following Friday’s policy meeting. In addition, the dollar rallied on Friday’s comments from Fed Chair Powell, who said, “the Fed’s strong commitment to its price-stability mandate contributes to the widespread confidence in the dollar as a store of value.”
U.S. economic data Friday was weaker than expected and bearish for the dollar. U.S. May manufacturing production unexpectedly fell -0.1% m/m, weaker than expectations of +0.3% m/m and the first decline in four months. U.S. May industrial production rose +0.2% m/m, weaker than expectations of +0.4% m/m.
Slightly dovish comments Friday from Minneapolis Fed President Kashkari were negative for the dollar when he said, "while I supported increasing the federal funds rate by 75 bp at this week's meeting, and could support such a move in July, this uncertainty about how much tightening will be needed leads me to be cautious about too much more front-loading."
EUR/USD (^EURUSD) on Friday fell by -0.0059 (-0.56%). EUR/USD Friday posted moderate losses on lower European government bond yields. The 10-year German bund yield Friday fell -5.3 bp to 1.661%, falling back from Thursday’s 8-year high of 1.928%. Thursday’s pledge from ECB President Lagarde to curb the rise in borrowing costs weighed on bund yields and the euro. Lagarde said the ECB would implement a new mechanism that may be triggered if European bond spreads widen beyond certain thresholds or if market movements exceed a certain speed.
Hawkish comments Friday from ECB Governing Council member Knot were supportive of the euro when he said several 50 bp increases in interest rates by the ECB could be needed if inflation worsens.
USD/JPY (^USDJPY) on Friday rose +2.80 (+2.12%). USD/JPY Friday rallied sharply and is just below Wednesday’s 23-year high. The yen tumbled Friday when the BOJ maintained its ultra-easy monetary stance after today’s policy meeting. Losses in the yen accelerated Friday after the BOJ boosted QE when it announced that it would continue to buy cheapest-to-deliver 10-year JGB bonds for an extended time.
The BOJ, in an 8-1 vote, maintained its policy balance rate at -0.1% and kept the 10-year JGB yield target at about 0%.
BOJ Governor Kuroda said the BOJ is not considering raising the upper limit on the 10-year JGB yield ceiling target range, and any tightening of monetary policy would add downward pressure on the economy.
August gold (GCQ22) Friday closed down -9.3 (-0.50%), and July silver closed down -0.298 (-1.36%). Precious metals Friday settled moderately lower. A rally in the dollar Friday weighed on metals prices. Also, higher T-note yields Friday undercut gold prices, and the weaker-than-expected U.S. manufacturing report signals reduced demand for industrial metals that is bearish for silver prices.
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.
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