The dollar index (DXY00) on Wednesday rose by +0.581 (+0.55%), adding to Tuesday’s sharp rally and posting a new 20-year high. The stronger-than-expected U.S. ISM services index and May JOLTS job openings reports were bullish for the dollar. Also, weakness in EUR/USD was bullish for the dollar after the euro Wednesday sank to a 20-year low. In addition, political instability in the UK knocked the British pound to a 2-1/4 year low against the dollar after five more of UK Prime Minister Johnson’s cabinet members resigned Wednesday, adding to the two cabinet resignations on Tuesday.
Wednesday’s U.S. economic data was supportive of the dollar. The Jun ISM services index fell -0.6 to 55.3, stronger than expectations of 54.0. Also, May JOLTS job openings fell -427,000 to 11.254 million, showing a stronger labor market than expectations of 11.000 million.
The minutes of the June 14-15 FOMC meeting were hawkish and bullish for the dollar. The minutes said that many on the FOMC saw a "significant risk" of entrenched inflation and that "even more restrictive" policy was possible in time. As a result, Fed officials saw a 50 bp or a 75 bp rate hike at the July FOMC meeting as likely.
EUR/USD (^EURUSD) on Wednesday fell by -0.0079 (-0.77%). EUR/USD Wednesday added to Tuesday’s losses and posted a new 20-year low. EUR/USD remains under pressure on concern the ECB will be slow to tighten monetary policy, which has weakened the euro’s interest rate differentials.
Eurozone economic data Wednesday was mixed for EUR/USD. On the negative side, Eurozone May retail sales rose +0.2% m/m, weaker than expectations of +0.4% m/m. Conversely, German May factory orders unexpectedly rose +0.1% m/m, stronger than expectations of -0.5% m/m.
USD/JPY (^USDJPY) on Wednesday rose by +0.11 (+0.00%). USD/JPY Wednesday shook off early losses and posted modest gains. The yen fell back Wednesday after the 10-year T-note yield rebounded from a 5-week low and moved higher. The yen Wednesday initially strengthened on safe-haven demand after the Nikkei Stock Index fell -1.2%.
August gold (GCQ22) Wednesday closed down -27.4 (-1.55%), and September silver (SIU22) closed up +0.038 (+0.20%). Precious metals Wednesday settled mixed, with gold tumbling to a 9-1/2 month low. A rally in the dollar index to a 20-year high Wednesday undercut metals prices. Also, strength in stocks Wednesday curbed safe-haven demand for precious metals. Gold is also under pressure on reduced demand as an inflation hedge after the 10-year breakeven inflation rate fell to a 9-1/2 month low Wednesday. On the other hand, silver recovered from a 2-year low Wednesday and posted modest gains as better-than-expected U.S. economic data Wednesday was supportive for the industrial metals demand outlook.
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 has launched mass testing for nine districts in Shanghai after detecting new Covid infections, and 66 new Covid infections were reported in Jiangsu province Tuesday, the second-biggest province for China's economic output. Also, the 7-day average of new U.S. Covid infections rose to a 3-1/2 week high of 119,644 last Friday.
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