The dollar index (DXY00) Monday fell by -0.19%. The dollar Monday gave up overnight gains and turned lower as the euro strengthened after French political risks eased. The dollar extended its losses Monday when the S&P 500 rallied to a new record high, which curbed liquidity demand for the dollar.
The dollar on Monday initially moved higher as higher T-note yields strengthened the dollar’s interest rate differentials. The dollar also found support in Monday’s US economic news, which showed that the Jun Empire manufacturing survey general business conditions index rose more than expected to a 4-month high. Hawkish comments from Minneapolis Fed President Kashkari and Philadelphia Fed President Harker supported the dollar when they said the Fed could wait before cutting interest rates.
The US Jun Empire manufacturing survey general business conditions index rose +9.6 to a 4-month high of -6.0, stronger than expectations of -10.0.
Philadelphia Fed President Harker said that he views one interest rate cut by the Fed as appropriate for this year, adding he'd like to see "several" more months of improving inflation.
On Sunday, Minneapolis Fed President Kashkari said the Fed is in a good position to take its time and watch incoming data before starting to cut interest rates.
The markets are discounting the chances for a -25 bp rate cut at 8% for the July 30-31 FOMC meeting and 60% for the following meeting on Sep 17-18.
EUR/USD ([^EURUSD](https://www.barchart.com/forex/quotes/%5EEURUSD/overview)) on Monday rose by +0.27%. The euro rallied moderately Monday after Eurozone Q1 labor costs were revised upward, a hawkish factor for ECB policy. The euro extended its advance Monday as political uncertainty in France slightly eased when Marine Le Pen, leader of the National Rally party that is leading in the polls, said if her party wins in the upcoming national elections, she would co-operate with French President Macron.
Eurozone Q1 labor costs were revised upward to 5.1% y/y from the previously reported 4.9% y/y.
ECB Governing Council member Vujcic said an interest rate cut in September would require an improvement in the ECB's inflation outlook.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 11% for the July 18 meeting and 59% for the September 12 meeting.
USD/JPY ([^USDJPY](https://www.barchart.com/forex/quotes/%5EUSDJPY/overview)) on Monday rose by +0.22%. The yen moved lower Monday on weak Japanese economic news after Japan's Apr core machine orders fell by the most in 5 months, a dovish factor for BOJ policy. Also, higher T-note yields on Monday undercut the yen. Losses in the yen were limited after BOJ Governor Ueda said Monday that he needs to continue to closely monitor foreign exchange rates and import prices for any impact on inflation.
Japan Apr core machine orders fell -2.9% m/m, the biggest decline in 5 months.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 37% for the July 31 meeting and at 51% for the September 20 meeting.
August gold (GCQ4) Monday closed down -20.10 (-0.86%), and July silver (SIN24) closed down -0.081 (-0.27%). Precious metals on Monday posted moderate losses. Higher global bond yields on Monday weighed on precious metals. Also, reduced political uncertainty in France has curbed safe-haven demand for precious metals after National Party leader Le Pen said she would work with French President Macron if she won in the upcoming French national elections. In addition, hawkish comments from Minneapolis Fed President Kashkari and Philadelphia Fed President Harker undercut gold when they said the Fed could take its time before cutting interest rates. Silver prices were undercut due to Chinese industrial metals demand concerns after Monday’s economic reports showed China May industrial production rose less than expected and China May new home prices fell by -0.71% m/m, the biggest decline in 9-1/2 years.
Weakness in the dollar on Monday limited losses in metals prices. Silver also garnered some support from Monday’s US economic news that showed the Jun Empire manufacturing survey general business conditions index rose more than expected to a 4-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.