Dollar Retreats as T-Note Yields Fall

The dollar index (DXY00) on Thursday fell by -0.358 (-0.34%).  The dollar Thursday erased early gains and retreated from a 2-week high.  A fall in T-note yields Thursday weighed on the dollar after the 10-year T-note yield dropped to a 3-week low of 2.269%.  Economic concerns also weighed on the dollar after data showed U.S. May personal spending rose less than expected, and the Jun MNI Chicago PMI fell to a 1-3/4 year low. The dollar Thursday morning initially rallied to a 2-week high after a stock slump boosted liquidity demand for the dollar. 

U.S. weekly initial unemployment claims fell -2,000 to 231,000, close to expectations of 230,000.

U.S. May personal spending rose +0.2% m/m, weaker than expectations of +0.4% m/m.  May personal income rose +0.5% m/m, right on expectations.

The U.S. May PCE core deflator rose +0.3% m/m and +4.7% y/y, a slower pace of increase than expectations of +0.4% m/m and +4.8% y/y. 

The U.S. Jun MNI Chicago PMI fell -4.3 to a 1-3/4 year low of 56.0, weaker than expectations of 58.0.

EUR/USD (^EURUSD) on Thursday rose by +0.0034 (+0.33%).  EUR/USD Thursday recovered from a 2- week low and posted moderate gains.  Stronger-than-expected Eurozone economic data Thursday was bullish for the euro, along with hawkish comments from ECB Governing Council member Holzmann.  EUR/USD Thursday initially fell to a 2-week low after Reuters reported that the ECB would purchase Italian, Spanish, Portuguese, and Greek bonds with the profits it gets from maturing German, French, and Dutch debt bought under the Pandemic Emergency Purchase Program (PEPP) to cap spreads in borrowing costs.

ECB Governing Council member Holzmann said he'd have "preferred earlier rate hikes" by the ECB, and it may take "some time" to get back to the ECB's inflation target.

The Eurozone May unemployment rate unexpectedly fell -0.1 to a record low 6.6%, showing a stronger labor market than expectations of 6.8%.

German May retail sales rose +0.6% m/m, stronger than expectations of +0.5% m/m.

The German May import price index eased to +30.6% y/y, a slower pace of increase than expectations of +31.5% y/y.

USD/JPY (^USDJPY) on Thursday fell by -0.93 (-0.68%).  USD/JPY Thursday moved lower as a decline in T-note yields boosted the yen after the 10-year T-note yield fell to a 3-week low.  Also, a slump in stock prices Thursday boosted the safe-haven demand for the yen.  In addition, the yen gained Thursday after the BOJ announced no increases in bond purchases for the July-September period.  Thursday’s weaker than expected Japan May industrial production data was bearish for the yen. 

Japan May industrial production fell -7.2% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 2 years.

August gold (GCQ22) Thursday closed down -10.2 (-0.56%), and July silver closed down -0.386 (-1.87%).  Gold and silver Thursday closed moderately lower, with gold falling to a 1-1/2 month low and silver tumbling to a 23-month low. Gold prices fell on reduced demand for gold as an inflation hedge after the U.S. May core PCE deflator rose less than expected, and after the 10-year breakeven inflation rate sank to a 5-month low.  Silver prices also fell on industrial metals demand concerns after the U.S. Jun MNI Chicago PMI and Japan May industrial production were weaker than expected.  Losses in gold were limited Thursday from a decline in global bond yields.

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.  China reported no new Covid infections in Beijing and Shanghai on Monday for the first time in 4 months.  However, the 7-day average of new U.S. Covid infections rose to a 3-week high of 113,593 on Monday.

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