Market News

The dollar index (DXY00) on Wednesday fell by -0.61% to a 1-week low. Hawkish comments from ECB Governing Council member Holzmann on Wednesday boosted EUR/USD to a 1-week high, undercutting the dollar, as he stated there is no need for the ECB to cut interest rates further.

The dollar was also under pressure from increased expectations for a Fed rate cut after the recent weaker-than-expected US payroll and PMI reports.  Losses in the dollar accelerated Wednesday on dovish comments from Minneapolis Fed President Neel Kashkari and Fed Governor Lisa Cook, who signaled their support for interest rate cuts.

Also, questions about the Fed’s credibility continue to weigh on the dollar after Fed Governor Adriana Kugler resigned last Friday, which could prompt President Trump to nominate a new governor who is more dovish and could undermine Fed Chair Powell’s influence.

Minneapolis Fed President Neel Kashkari said, “The economy is slowing and in the near term it may become appropriate to start adjusting the federal funds rate lower.”

Fed Governor Lisa Cook said last Friday’s US July jobs report is “concerning” and that “the revisions are somewhat typical of turning points” in the US economy.

In recent tariff news, President Trump announced today that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India’s purchases of Russian oil.  On Tuesday, Mr. Trump said that US tariffs on semiconductor and pharmaceutical imports would be announced “within the next week or so.” Last Thursday, President Trump raised tariffs on some Canadian goods to 35% from 25% and announced a 10% global minimum, along with tariffs of 15% or higher for countries with trade surpluses with the US, effective after midnight on August 7.  According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 95% at the September 16-17 FOMC meeting and 68% at the following meeting on October 28-29.

EUR/USD (^EURUSD) Wednesday rose by +0.75% to a 1-week high.  The euro rallied Wednesday on hawkish comments from ECB Governing Council member Holzmann, who said he sees no reason for the ECB to cut interest rates again.  Gains in the euro accelerated Wednesday after the dollar tumbled on dovish comments from Minneapolis Fed President Neel Kashkari and Fed Governor Lisa Cook, who signaled their support for interest rate cuts.

On the bearish side for the euro was Wednesday’s Eurozone economic news that showed German June factory orders unexpectedly posted their biggest decline in 5 months.  Also, the euro is struggling due to concerns that President Trump’s tariff policies will curb economic growth in the Eurozone.

Eurozone June retail sales rose +0.3% m/m, right on expectations.

German June factory orders unexpectedly fell -1.0% m/m, weaker than expectations of a +1.1% m/m increase and the biggest decline in 5 months.

ECB Governing Council member Holzmann said, “In my view, there is no longer any reason for the ECB to lower interest rates further and we should wait and see what economic developments arise, particularly outside Europe, and how we respond to them.”

Swaps are pricing in a 12% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.

USD/JPY (^USDJPY) Wednesday fell by -0.37%.  The yen strengthened against the dollar Wednesday after Japan’s nominal wages in June accelerated from May, a hawkish factor for BOJ policy. Higher T-note yields on Wednesday limited gains in the yen.  Also, the yen has negative carryover from Tuesday when the minutes of the June 16-17 BOJ meeting showed policymakers were concerned about ending its QE program too quickly.

Japan’s June labor cash earnings rose +2.5% y/y from +1.4% y/y in May, although weaker than expectations of +3.1% y/y.

December gold (GCZ25) on Wednesday closed down -1.30 (-0.04%), and September silver (SIU25) closed up +0.079 (+0.21%).  Precious metals settled mixed on Wednesday.  The decline in the dollar index to a 1-week low on Wednesday was bullish for metals.  Also, dovish Fed comments on Wednesday from Minneapolis Fed President Neel Kashkari and Fed Governor Cook were bullish for precious metals as they signaled their support for interest rate cuts.  Demand for precious metals as a store of value has increased after recent weaker-than-expected US economic news may prompt the Fed to cut interest rates as soon as next month.   The chance of a Fed interest rate cut at the September FOMC meeting has risen to 95% on Wednesday from 40% last Friday. 

Gains in precious metals prices were limited, and gold turned lower Wednesday on hawkish comments from ECB Governing Council member Holzmann, who said there is no longer any reason for the ECB to lower interest rates further. Also, strength in stocks and higher T-note yields on Wednesday weighed on precious metals.

Precious metals still have safe-haven support on concerns that President Trump’s tariff policies will weigh on global economic growth prospects. Finally, precious metals continue to receive safe-haven support from geopolitical risks, including the conflicts in Ukraine and the Middle East.