The dollar index (DXY00) Thursday rose by +0.77% and posted a 2-1/2 week high. The dollar rallied moderately Thursday on a possible easing of US-China trade tensions after state-run China Central Television said the US has been proactively reaching out to China through various channels, seeking to negotiate on tariff issues. The dollar extended its gains after the US Apr ISM manufacturing index fell less than expected.
Limiting gains in the dollar was Thursday’s US economic news that showed weekly jobless claims rose to a 2-month high, and Mar construction spending unexpectedly declined, dovish factors for Fed policy. Also, Thursday’s stock rally reduced liquidity demand for the dollar.
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US weekly initial unemployment claims rose +18,000 to a 2-month high of 241,000, showing a weaker labor market than expectations of 223,000. Also, weekly continuing claims rose +83,000 to a 3-1/2 year high of 1.916 million, showing a weaker labor market than expectations of 1.865 million.
The US Apr ISM manufacturing index fell -0.3 to a 5-month low of 48.7, although that was stronger than expectations of a larger decline to 47.9. The Apr ISM prices paid sub-index rose +0.4 to a 2-3/4 year high of 69.8, although that was below expectations of 73.0.
US Mar construction spending unexpectedly fell -0.5% m/m, weaker than expectations of a +0.2% m/m increase and the largest decline in 6 months.
The markets are discounting the chances at 7% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) Thursday fell by -0.34% and posted a 2-week low. The dollar’s strength on Thursday weighed on the euro. However, thin trading conditions may have exaggerated moves in EUR/USD with most European markets closed Thursday for the Labour Day holiday.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Thursday rose by +1.75%. The yen tumbled to a 3-week low against the dollar Thursday after the BOJ unanimously kept interest rates unchanged. The yen also came under pressure after the Japan Apr consumer confidence index fell more than expected to a 2-year low. Losses in the yen accelerated after the BOJ cut its Japan 2025 GDP forecast and its 2025 core CPI forecast.
The Japan Apr consumer confidence index fell -2.9 to a 2-year low of 31.2, weaker than expectations of 33.8.
The Japan Apr Jibun Bank manufacturing PMI was revised upward by +0.2 to 48.7 from the previously reported 48.5.
The BOJ, as expected, voted 9-0 to keep the overnight call rate unchanged at 0.50% and said the risks are skewed to the downside for the economy and prices in fiscal years 2025 and 2026.
The BOJ cut its 2025 GDP forecast to +0.5% from +1.1% in Jan and cut its 2025 core CPI forecast to +2.2% from +2.4% in Jan.
June gold (GCM25) Thursday closed down -96.90 (-2.92%), and July silver (SIN25) closed down -0.359 (-1.09%). Precious metals prices on Thursday sold off sharply, with gold and silver posting 2-1/2 week lows. Thursday’s rally in the dollar index to a 2-1/2 week high is bearish for metals. Also, a possible easing of US-China trade tensions has sparked long liquidation in precious metals after China Central Television said the US has been proactively reaching out to China through various channels, seeking to negotiate on tariff issues. In addition, Thursday’s stock rally curbed safe-haven demand for precious metals. On the bullish side, precious metals prices have continued support from geopolitical risks in the Middle East as the Israel-Hamas and the US-Houthi conflicts continue.
Silver prices were also under pressure Thursday after the BOJ cut its Japan 2025 GDP forecast, a negative factor for industrial metals demand. Other bearish news for industrial metals demand included Thursday’s news that the US Apr ISM manufacturing index fell to a 5-month low and Mar construction spending unexpectedly fell by the most in 6 months.
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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