The dollar index (DXY00) is down by -0.20% and posted a 3-1/4 year low. The dollar remains under pressure on uncertainties over US trade policies with many nations trying to negotiate trade deals with the US before President Trump’s July 9 deadline. Also, rising deficits are bearish for the dollar as the Congressional Budget Office estimates the measure would add nearly $3.3 trillion to US deficits over the next ten years. The dollar extended its losses after the June MNI Chicago PMI unexpectedly contracted by the most in 5 months.
Losses in the dollar are limited by signs of progress in trade negotiations with China and the EU. Also, trade talks are back on with Canada after it withdrew a digital services tax. In addition, Indian and Japanese trade negotiators extended their stay in the US this week to iron out trade deals.
The US June MNI Chicago PMI unexpectedly fell -0.1 to 40.4, weaker than expectations of an increase to 43.0 and the weakest report in 5 months.
Atlanta Fed President Bostic said much of the tariff pricing hasn’t shown up in the marketplace yet, and he projects one 25-bp rate cut this year and three rate cuts in 2026.
The markets are discounting a 19% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) today is up by +0.16%. The euro is moving higher today but remains just below last Friday’s 3-3/4 year high. The dollar’s weakness today is supporting the euro. However, gains in the euro are limited by weak economic news from the Eurozone and dovish comments from the ECB. German May retail sales fell more than expected, and the German June CPI rose less than expected, dovish factors for ECB policy and negative factors for the euro. Also, ECB Vice President Guindos said he expects growth in the Eurozone in the second and third quarters this year “will be almost flat.”
German May retail sales unexpectedly fell by 1.6% m/m, weaker than expectations of a +0.5% m/m increase and the biggest decline in more than 2-1/2 years.
The German Jun CPI (EU harmonized) rose +0.2% m/m and +1.7% y/y, weaker than expectations of +0.3% m/m and +1.8% y/y.
ECB Vice President Guindos said the Eurozone economy is stalling because of the “brutal uncertainty” surrounding global trade policy and that second and third quarter growth “will be almost flat.”
Swaps are pricing in a 6% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) today is down by -0.24%. Increased safe-haven demand is supporting the yen today after President Trump stated that Japan is unfair in the auto trade, and he may maintain the 25% tariff on Japanese cars. Also, lower T-note yields today are supportive for the yen.
The yen was undercut after Japanese May industrial production rose less than expected, a dovish factor for BOJ policy. Also, today’s rally in the Nikkei Stock Index to an 11-1/2 month high has curbed some safe-haven demand for the yen.
Japan’s May industrial production rose +0.5% m/m, weaker than expectations of +3.5% m/m.
August gold (GCQ25) today is up +8.40 (+0.26%), and July silver (SIN25) is down by -0.132 (-0.37%). Precious metals today are mixed. Today’s slide in the dollar index to a 3-1/4 year low is a bullish factor for metals prices. Gold also has support as a store of value due to concerns that President Trump’s spending and tax bill will increase the US deficit, as the CBO has estimated that the bill will add $3.3 trillion to the deficit over the next ten years. In addition, trade uncertainty has boosted demand for safe-haven assets, including precious metals, as nations scramble to negotiate trade deals with the US before President Trump’s July 9 deadline. Fund buying of gold continues to support prices after gold holdings in ETFs rose to a 1-3/4 year high last Friday.
Precious metals prices are being undercut as today’s rally in the S&P 500 to a new record high has reduced safe-haven demand for precious metals. Silver prices are also under pressure today due to concern about demand for industrial metals after the US June MNI Chicago PMI unexpectedly contracted by the most in 5 months. Also, ECB Vice President Guindos said growth in the Eurozone “will be almost flat” in the second and third quarters of this year.
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. This article was originally published on Barchart.com
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