The dollar index (DXY00) Friday fell by -0.50% on dovish comments from Chicago Fed President Goolsbee, who said the US labor market and some leading indicators on the economy are flashing warning signs. The dollar also retreated on Friday’s weaker-than-expected US July housing starts report.
The dollar extended its losses Friday after the S&P 500 recovered from early losses and rallied to a 2-week high, curbing liquidity demand for the dollar. The stronger-than-expected University of Michigan’s Aug US consumer sentiment index was a positive factor for the dollar Friday.
US July housing starts fell -6.8% m/m to a 4-year low of 1.238 million, weaker than expectations of 1.333 million. July building permits, a proxy for future construction, fell -4.0% m/m to a 4-year low of 1.396 million, weaker than expectations of 1.425 million.
The University of Michigan’s Aug US consumer sentiment index rose +1.4 to 67.8, stronger than expectations of 66.9.
Chicago Fed President Goolsbee said the US labor market and some leading indicators on the economy are flashing warning signs, and there are concerns unemployment will continue to rise.
The markets are discounting the chances at 100% for a -25 bp rate cut at the Sep 17-18 FOMC meeting and at 30% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) Friday rose by +0.43%. Weakness in the dollar Friday pushed the euro higher. However, the euro was being undercut by lower European government bond yields.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.
USD/JPY (^USDJPY) Friday fell by -1.07%. The yen rallied against the dollar Friday after T-note yields fell on the weaker-than-expected US Jul housing starts report. The yen moved higher Friday despite an unexpected decline in Japan’s Jun tertiary industry activity index. Also, Friday’s sharp +3% rally in the Nikkei Stock Index to a 2-week low reduced safe-haven demand for the yen.
The Japan Jun tertiary industry activity index unexpectedly fell -1.3% m/m, weaker than expectations of +0.3% m/m.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 0% for the September 20 meeting and +13% for the October 30-31 meeting.
December gold (GCZ24) Friday closed up +45.40 (+1.82%), and September silver (SIU24) closed up +0.431 (+1.52%). Precious metals rallied Friday, with Dec gold posting a new contract high and nearest-futures Aug gold posting an all-time high of $2,498.60 an ounce. Silver prices climbed to a 2-week high.
Weakness in the dollar Friday and a decline in global bond yields were bullish for precious metals. Also, dovish comments Friday from Chicago Fed President Goolsbee suggest he favors a Fed rate cut next month when he said the US labor market and some leading indicators on the economy are flashing warning signs. Gold also found support on Friday’s weaker-than-expected US housing starts report, a dovish factor for Fed policy. Finally, safe-haven demand for precious metals remains strong as an attack by Iran on Israel may be imminent in retaliation for the recent assassination of a Hamas political leader in Tehran.
Silver prices were under early pressure Friday before recovering due to industrial metal demand concerns after the US July housing starts and building permits fell more than expected to 4-year lows, which are bearish factors for industrial metals demand.
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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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