The dollar index (DXY00) is up +0.22% today. The dollar index is seeing some technical buying as it extends its two-week rally to post a 3-week high. Bullish factors for the dollar include safe-haven demand amid weakness in stocks and a stronger-than-expected US industrial production report. Bearish factors today include a -4 bp decline in the 10-year T-note yield and today’s soft PPI report.
Today’s June PPI report was favorable, as both the month-over-month and year-over-year figures were better than expected, suggesting that tariff inflation has not yet hit the producer level. The PPI report sparked some inflation optimism after Tuesday’s mixed CPI report.
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Specifically, the June final-demand PPI was unchanged m/m and +2.3% y/y, which was weaker than expectations of +0.2% m/m and +2.5% y/y. The June core PPI report of unchanged m/m and +2.6% y/y was weaker than expectations of +0.2% m/m and +2.6% y/y. The year-over-year figures of +2.3% (nominal) and +2.6% y/y (core) were down from the revised May figures of +2.7% and +3.2%, respectively.
Today's June US industrial production report of +0.3% m/m was slightly stronger than market expectations of +0.1%, and May was revised higher to unchanged from -0.2%. The June US manufacturing production report of +0.1% m/m was slightly stronger than expectations of unchanged.
The July New York Fed services business activity index rose to -9.3 from -13.2 in June.
The Fed's July Beige Book report will be released later today.
Expectations for Fed policy were little changed after today's economic reports. Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the July 29-30 FOMC meeting and 59% at the following meeting on Sep 16-17.
EUR/USD (^EURUSD) is down -0.28% due to strength in the dollar. The euro is receiving some underlying support from the May Eurozone trade surplus report, which showed a surplus of 16.2 billion euros. This was wider than market expectations of 14.0 billion euros and up from April's revised 15.1 billion euros.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) is little changed. The yen is seeing some downward pressure from the stronger dollar. However, the yen has some support from interest rate differentials as the 10-year JGB yield today rose +0.4 bp, while the US 10-year T-note yield is down -4.2 bp.
The yen remains under pressure due to concerns about the upcoming upper house election in Japan on July 20. The promises by Japan's ruling Liberal Democratic Party of cash handouts to voters and promises of lower taxes by the opposition have sparked concerns of fiscal deterioration, which are bearish for the yen.
August gold (GCQ25) today is down -2.5 (-0.07%), and September silver (SIU25) is down -0.215 (-0.56%). Precious metals are trading lower on today's +0.2% rise in the dollar index. However, precious metals have underlying support from today's -4.2 bp decline in the 10-year T-note yield.
Precious metals also have some underlying support from safe-haven demand as Congress loosens restrictions on stablecoins, which could boost inflation in the future due to an underlying increase in the nation's unofficial money supply and potentially cause eventual systemic problems for the Fed and the US banking system.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
