The dollar index (DXY00) rose by +0.27% on Thursday. The dollar rallied on Thursday as better-than-expected US economic reports signaled economic strength and lifted T-note yields. Weekly jobless claims unexpectedly fell to a 10-week low, Jun retail sales rose as expected, and the Jul Philadelphia Fed business outlook survey jumped to a 4.5-year high. Also, Thursday’s stock weakness boosted liquidity demand for the dollar. The dollar rose to its high on Thursday amid hawkish comments from Kansas City Fed President Jeff Schmid and Dallas Fed President Lorie Logan, who said they favored tighter Fed policy to bring down inflation.
US weekly initial unemployment claims unexpectedly fell -8,000 to a 10-week low of 208,000, showing a stronger labor market than expectations of an increase to 217,000.
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US Jun retail sales rose +0.2% m/m, right on expectations. However, Jun retail sales ex-autos fell -0.2% m/m, weaker than expectations of -0.1% m/m.
The US Jul Philadelphia Fed business outlook survey rose +31.1 to a 4.5-year high of 41.4, stronger than expectations of 12.5.
US Jun pending home sales fell -5.4% m/m, weaker than expectations of -0.5% m/m and the steepest decline in 6 months.
The US Jul NAHB housing market index unexpectedly fell -2 to 34, weaker than expectations of no change at 35.
Kansas City Fed President Jeff Schmid said “his primary concern is inflation, which is too hot and has been above target for too long. As such, my focus remains on inflation in setting the correct course for monetary policy.”
Dallas Fed President Lorie Logan said “I currently believe modestly higher interest rates would better balance the outlook and risks” for the Fed’s dual mandate of price stability and full employment.
Heightened tensions between the US and Iran could push crude oil prices higher and prompt the Fed to tighten monetary policy, which would be supportive of the dollar. The US launched fresh airstrikes on Iran and struck a sanctioned Iranian oil tanker in the Persian Gulf. Iran responded by firing upon American bases in Kuwait and Jordan, with the Jordanian government saying it intercepted eight missiles. President Trump pledged to intensify the bombardment until Iran stops attacking ships in the Strait of Hormuz and agrees to open the waterway. The Wall Street Journal reported on Thursday that President Trump is leaning toward expanding military operations and discussed the seizure of Kharg Island, Iran’s main oil export terminal.
The swaps markets are discounting the odds at 10% for a +25 bp rate hike at the next FOMC meeting on July 28-29.
EUR/USD (^EURUSD) fell by -0.23% on Thursday. Dollar strength on Thursday weighed on the euro. Losses in the euro were limited amid higher European government bond yields, which strengthen the euro’s interest rate differentials, as the 10-year German Bund yield climbed to a 1.75-month high of 3.164% on Thursday.
The markets are discounting a +7% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) rose by +0.14% on Thursday. The yen fell on Thursday amid a stronger dollar. Also, Thursday’s better-than-expected US economic reports pushed T-note yields higher, a bearish factor for the yen. Losses in the yen were limited after Thursday’s -2% slump in the Nikkei Stock Index boosted some safe-haven demand for the yen.
The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen surpassed that level.
The markets are discounting a +1% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.
August COMEX gold (GCQ26) on Thursday closed down -59.70 (-1.47%), and September COMEX silver (SIU26) closed down -1.246 (-2.17%).
Gold and silver prices fell sharply on Thursday, with gold posting a 2-week low and silver falling to a 3-week low. Thursday’s US economic news on weekly jobless claims, Jun retail sales, and the Jul Philadelphia business outlook survey showed strength in the economy that could persuade the Fed to tighten monetary policy, a negative factor for precious metals. Losses in precious metals accelerated on Thursday amid hawkish comments from Kansas City Fed President Jeff Schmid and Dallas Fed President Lorie Logan, who said they favored tighter Fed policy to bring down inflation.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.5-month low today, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.75-month low today from the 3.5-year high posted on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves rose by +480,000 ounces to 75.44 million troy ounces in June, the twentieth consecutive month the PBOC boosted its gold reserves.
