The dollar index (DXY00) on Thursday rose by +0.17% after mixed US economic reports. The upward revision to Q2 nonfarm productivity and the downward revision to Q2 unit labor costs were supportive for the dollar. The dollar also found support after the Aug ISM services index expanded at its fastest pace in six months.
However, the smaller-than-expected increase in the Aug ADP employment change and rise in weekly jobless claims to a 10-week high were dovish for Fed policy and bearish for the dollar. The dollar was also undercut by Thursday’s -5 bp decline in the 10-year T-note yield to 4.16%, which hurt the dollar’s interest rate differentials.
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The Aug ADP employment change rose +54,000, weaker than expectations of +68,000
US weekly initial unemployment claims rose by +8,000 to a 10-week high of 237,000, showing a weaker labor market than expectations of 230,000.
US Q2 nonfarm productivity was revised upward to +3.3% from the previously reported +2.4%, better than expectations of +2.7%. Q2 unit labor costs were revised downward to +1.0% from the previously reported +1.6%, a smaller increase than expectations of +1.2%.
The US Aug ISM services index rose +1.9 to a 6-month high of 52.0, stronger than expectations of 51.1.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 99% at the September 16-17 FOMC meeting and at 54% for a second -25 bp rate cut at the following meeting on October 28-29.
EUR/USD (^EURUSD) fell by -0.10%. The euro came under pressure from the stronger dollar and the weaker-than-expected Eurozone July retail sales report.
Eurozone July retail sales fell -0.5% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 13 months.
On the geopolitical front, diplomatic efforts to end the war in Ukraine remain elusive, which is bearish for the euro. Last Friday, German Chancellor Merz and French President Macron called for secondary sanctions on Russia for its war in Ukraine and said they will push for measures targeting “companies from third countries that support Russia’s war.” Last Thursday, German Chancellor Merz stated that a meeting between Russian President Putin and Ukrainian President Zelensky is unlikely to take place.
Swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) rose by +0.24%. The yen moved lower on dollar strength and negative carryover from Tuesday’s news that the Secretary General of Japan’s Liberal Democratic Party, Hiroshi Moriyama, a key ally of Prime Minister Ishiba and a proponent of fiscal discipline, is stepping down, which is seen as paving the way toward a more expansionary fiscal policy. Lower T-note yields on Thursday limited losses in the yen.
December gold (GCZ25) on Thursday closed down -28.80 (-0.79%), and December silver (SIZ25) closed down -0.643 (-1.53%). Precious metal prices closed lower on a stronger dollar and reduced safe-haven demand, driven by the strength in stocks.
Gold prices saw support from increased expectations for a Fed rate cut at its next meeting due to Thursday’s weak US labor market reports. Silver, however, was undercut by concern that the weak US labor market reports indicate weaker economic growth and reduced industrial metal demand.
Precious metals prices received support due to concerns over the Fed’s independence after Stephen Miran, during his Senate confirmation hearing on Thursday for his appointment as a Fed governor, stated that he would not relinquish his position as chair of the White House Council of Economic Advisors, opting instead for an unpaid leave of absence.
Gold prices have continued support from uncertainty tied to US tariffs and geopolitical risks. Also, political uncertainty in France is driving demand for gold as a safe-haven, following French Prime Minister Bayrou’s call for a confidence vote that could bring down his government as soon as next week.
Precious metals prices have continued support from fund buying of precious metal ETFs. Gold holdings in ETFs rose to a 2-year high on Tuesday, and silver holdings in ETFs rose to a 3-year high on Wednesday.
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