The dollar index (DXY00) fell to a 2-week low on Thursday and finished down by -0.52%. The dollar tumbled on Thursday after a weaker-than-expected US June payroll report, which dampened speculation that the Fed will tighten monetary policy anytime soon. The dollar was also under pressure on Thursday after WTI crude fell to a 4.25-month low, which lowers inflation expectations and is dovish for Fed policy. The dollar found some support after weekly jobless claims unexpectedly declined and after May factory orders fell less than expected.
US Jun nonfarm payrolls rose +57,000, weaker than expectations of +113,000, and May nonfarm payrolls were revised lower to +129,000 from the originally reported +172,000. The Jun unemployment rate unexpectedly fell -0.1 to a 1-year low of 4.2%, showing a stronger labor market than expectations of no change at 4.3%.
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US Jan average hourly earnings rose +0.3% m/m and +3.5% y/y, right on expectations.
US weekly initial unemployment claims unexpectedly fell -1,000 to 215,000, showing a stronger labor market than expectations of an increase to 218,000.
US May factory orders fell -1.3% m/m, a smaller decline than expectations of -2.0% m/m. Also, May factory orders ex-transportation rose +1.9% m/m, stronger than expectations of +1.0% m/m and the biggest increase in more than 4 years.
The swaps markets are discounting the odds at 20% for a +25 bp rate hike at the next FOMC meeting on July 28-29.
EUR/USD (^EURUSD) climbed to a 1.5-week high on Thursday and finished up by +0.49%. The euro found support on Thursday as the dollar fell on the weaker-than-expected US Jun payroll report. The euro also received support from Thursday’s Eurozone economic news, which showed Italy’s unemployment rate unexpectedly fell to a record low, a hawkish factor for ECB policy.
Italy’s May unemployment rate unexpectedly fell by -0.1 to a record low of 5.0% (data from 2004), showing a stronger labor market than expectations of no change at 5.1%.
The markets are discounting a +4% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) on Thursday fell by -0.92%. The yen rallied sharply on Thursday to a 2-week high against the dollar after a Reuters report fueled speculation that Japanese authorities were preparing to intervene in the currency market to support the yen. The yen also has support from the jump in Japanese government bond yields, with the 10-year JGB yield rising to a 5-week high of 2.787% on Thursday, strengthening the yen’s interest rate differentials. The yen added to its gains on Thursday after T-note yields fell on the weaker-than-expected US Jun payroll report.
Reuters reported that Japan’s Ministry of Finance could abandon telegraphing its intention to the forex market and step in abruptly to wipe out speculative yen positions in a surprise intervention to support the yen.
The risk of intervention in currency markets to support the yen is rising after Japanese Finance Minister Satsuki Katayama said she spoke with US Treasury Secretary Scott Bessent last Tuesday, and they agreed to take “bold” steps on currencies if needed, and that the nations are increasingly “aligned” on foreign-exchange policy. With the yen firmly above 160 per dollar at a 39-year low, intervention risks have increased, as Japanese authorities have intervened in the forex market several times in the past when the yen reached that level.
The markets are discounting a +2% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.
August COMEX gold (GCQ26) on Thursday closed up +43.30 (+1.06%), and September COMEX silver (SIU26) closed up +0.553 (+0.91%).
Gold and silver prices climbed to 1-week highs on Thursday and settled sharply higher. Thursday’s slump in the dollar to a 2-week low was bullish for metals prices. Also, Thursday’s weaker-than-expected US Jun payroll report reduces the chances of the Fed tightening monetary policy and is supportive for precious metals. In addition, Thursday’s fall in WTI crude oil to a 4.25-month low lowers inflation expectations and may prompt central banks worldwide to ease monetary policy, a bullish factor for precious metals.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9-month low on Monday, after reaching a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 11.25-month low on Tuesday 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 +320,000 ounces to 74.96 million troy ounces in May, the largest monthly increase in 17 months, and the nineteenth consecutive month the PBOC boosted its gold reserves.
