The dollar index (DXY00) Wednesday rose by +0.48% and posted a 2-week high. The dollar rallied Wednesday on the rise in the 10-year T-note yield to a 4-week high. The dollar also garnered some support from Wednesday’s stronger-than-expected May Richmond Fed manufacturing outlook survey. In addition, the weakness in stocks on Wednesday boosted liquidity demand for the dollar.
The US May Richmond Fed manufacturing outlook survey rose +7 to a 7-month high of 0, stronger than expectations of no change at -7.
The Fed Beige Book was neutral for the dollar as it stated the US economy expanded at a "slight or modest" pace across most regions since early April. Also, "retail spending was flat to up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers." Employment rose at a slight pace, with eight of twelve districts reporting "negligible to modest job gains," and prices increased at a "modest pace," with business contacts noting consumers pushed back against additional price increases.
The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 10% for the following meeting on July 30-31.
EUR/USD ([^EURUSD](https://www.barchart.com/forex/quotes/%5EEURUSD/overview)) Wednesday fell by -0.49% and posted a 2-week low. The strength of the dollar Wednesday weighed on the euro. Positive factors for EUR/USD Wednesday were the stronger-than-expected German GfK consumer confidence and May CPI reports. Also, hawkish comments Wednesday from ECB Governing Council member Kazaks supported the euro when he warned against swift rate cuts by the ECB following an expected rate cut in June.
The German Jun GfK consumer confidence index rose +3.1 to a 2-year high of -20.9, stronger than expectations of -22.5.
German May CPI (EU harmonized) rose +2.8% y/y, stronger than expectations of +2.7% y/y and the largest increase in 4 months.
ECB Governing Council member Kazaks said the ECB shouldn't switch to "autopilot" in cutting interest rates following an expected cut in rates next week.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for its next meeting on June 6.
USD/JPY ([^USDJPY](https://www.barchart.com/forex/quotes/%5EUSDJPY/overview)) Wednesday rose by +0.31%. The yen tumbled to a 4-week low against the dollar Wednesday due to rising T-note yields. Also weighing on the yen was Wednesday’s news that Japan’s May consumer confidence index unexpectedly fell to a 7-month low. Hawkish comments Wednesday from BOJ Board member Adachi limited losses in the yen when he said persistent yen weakness could hasten rate hikes by the BOJ.
The Japan May consumer confidence index unexpectedly fell -2.1 to a 7-month low of 36.2, weaker than expectations of an increase to 39.5.
BOJ Board member Adachi said, "A monetary response would be one option for the BOJ if the impact on the achievement of the price stability target is predicted in the event that prolonged excessive yen weakness is affecting inflation."
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 31% for the June 14 meeting.
June gold (GCM4) Wednesday closed down -15.3 (-0.65%), and July silver (SIN24) closed up +0.236 (+0.73%). Precious metals prices Wednesday settled mixed. A stronger dollar on Wednesday was bearish for metals prices. Also, Wednesday’s jump in global bond yields was negative for precious metals. In addition, hawkish central bank comments weighed on gold Wednesday after BOJ Board member Adachi warned the BOJ could speed up rate hikes if the yen remained weak. Also, ECB Governing Council member Kazaks said the ECB shouldn’t rush to cut interest rates after an expected rate cut next month.
Precious metals prices have underlying support from heightened tensions in the Middle East that boosted safe-haven demand for precious metals. Also, Wednesday’s stronger-than-expected German May CPI report boosted demand for gold as an inflation hedge. In addition, Wednesday’s stock slump has boosted safe-haven demand for precious metals. Silver garnered support Wednesday after the US May Richmond Fed manufacturing outlook survey rose to a 7-month high, a positive factor for industrial metals demand.
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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.