The dollar index (DXY00) hit a 1.75-month high on Friday and gained +0.66%. The dollar recovered from early losses on Friday after a stronger-than-expected US May payrolls report fueled speculation that the Fed’s next move would be an interest rate hike. Additionally, a stock market selloff on Friday increased liquidity demand for the dollar.
The dollar also found safe-haven support as the US and Iran have made little progress in talks on an interim peace deal, with clashes continuing between Israel and Hezbollah militants in Lebanon. Iran is pushing for a ceasefire in Lebanon before accepting a US agreement to extend the ceasefire and reopen the Strait of Hormuz. President Trump said Thursday that talks with Iran are in the “final” stage, while Iran’s Foreign Minister Abbas Araghchi earlier said “no concrete progress has been made” although the two sides continue to exchange messages through intermediaries.
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US non-farm payrolls rose to +172,000 in May, stronger than expectations of +88,000. Additionally, April nonfarm payrolls rose to +179,000 from the previously reported +115,000. The unemployment rate remained unchanged at 4.3% in May, in line with expectations.
US average hourly earnings rose +0.3% m/m and +3.4% y/y in May, which was in line with expectations.
US April consumer lending increased by $20.733 billion, stronger than expected by $17.670 billion.
Swap markets are discounting +25% for a rate cut at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) fell to a 1.75-month low on Friday and was down -0.78%. Friday’s stronger-than-expected US May payrolls report pushed the dollar sharply higher and pressured the euro. Furthermore, the decline in Eurozone Q1 GDP on Friday was bearish for the euro.
Eurozone Q1 GDP was revised down to -0.2% q/q and +0.3% y/y from the previously reported +0.1% q/q and +0.8% y/y.
Markets are discounting a +100% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) rose +0.10% on Friday. The yen gave up early gains on Friday and fell to a 5-week low against the dollar after a stronger-than-expected US May payrolls report sent T-note yields rising.
The yen initially edged higher on Friday on stronger-than-expected Japanese economic reports on April household spending and April labor cash earnings, which were threats to BOJ policy. Furthermore, the closer the yen falls to around 160 per dollar, the more likely it is that Japanese authorities will intervene in the foreign exchange markets to prop up the yen, as they have done several times recently when the yen fell below that level.
Japan April’s key index CI rose +0.5 to a 4.25-year high of 115.9, stronger than 114.5.
Labor cash income in Japan rose +3.5% year-on-year in April, stronger than expected at +3.1% year-on-year and the fastest pace of growth in 16 months.
Household spending in Japan fell -0.5% y/y in April, a smaller decline than expected -1.5% y/y.
Markets are discounting a +94% probability of a +25 bp BOJ rate hike at the next policy meeting on June 16.
August COMEX gold (GCQ26) closed down -139.70 (-3.10%) on Friday, and July COMEX silver (SIN26) closed down -4.868 (-6.68%).
Gold and silver prices fell to a 2.5-month low on Friday and fell sharply. The metal prices ended a long slide after the dollar index hit a 1.75-month high on Friday. Furthermore, Friday’s stronger-than-expected US May payrolls report strengthens the outlook for Fed rate hikes, which is a bearish factor for precious metals prices. Moreover, higher global bond yields on Friday were negative for the precious metals.
The precious metal still enjoys safe-haven support as the US and Iran have made little progress in talks on an interim peace deal, with clashes continuing between Israel and Hezbollah militants in Lebanon. Additionally, the fall in stocks on Friday encouraged safe-haven buying of precious metals.
Recent precious metals fund liquidations are bearish for prices, as long holdings in gold ETFs fell to a 5.5-month low on March 31 after climbing to a 3.5-year high on February 27. Additionally, long holdings in silver ETFs fell to a 9.75-month low on Thursday after reaching a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China’s PBOC reserves increased by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has increased its gold reserves.
On the date of publication, Rich Asplund did not have (directly or indirectly) any positions in any securities mentioned in this article. All information and data in this article is for informational purposes only. Please see the Barchart Disclosure Policy here for more information.
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