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Current Trends in the Currency Market
Today, the dollar index witnessed a decline of 0.47%, moving down from a one-week peak in response to U.S. economic indicators. Recent data revealed a downward revision of the Q1 core PCE price index, alongside a surprising increase in continuing unemployment claims, reaching a 3.5-year high. These factors are seen as signaling a more cautious approach by the Federal Reserve. Additionally, a surge in stock market strength has reduced the demand for dollar liquidity. The dollar’s losses intensified following a notable drop in pending home sales for April, marking the steepest decline in over two and a half years.
Initially, the dollar had gained ground after a trade court ruling declared some of former President Trump’s tariffs as illegal. The currency also saw support from an upward revision of Q1 GDP figures.
Initial jobless claims for the week climbed by 14,000, totaling 340,000, signaling a labor market that underperformed against expectations of 230,000. Continuing claims unexpectedly rose by 22,000, hitting a three-and-a-half-year high of 1.919 million, deviating from forecasts that anticipated a decrease.
Furthermore, the Q1 GDP was adjusted upward to -0.2% (quarter-over-quarter annualized), an improvement from the previously stated -0.3%. In contrast, the core PCE price index for Q1 was revised down to 3.4%, slightly lower than the earlier reported 3.5%. Notably, pending home sales fell by 6.3% month-over-month, which was worse than the anticipated 1.0% and represents the largest drop observed in recent years.
In a significant legal decision, the U.S. Court of International Trade ruled unanimously that Trump’s emergency tariffs, branded as "Liberation Day" tariffs on international goods, were improperly invoked. This ruling pertains to his global 10% flat tariff, elevated duties on countries like China, and specific tariffs linked to fentanyl on imports from China, Canada, and Mexico. However, tariffs established under different regulations, such as Section 232 and Section 301, remain unaffected, including those on steel, aluminum, and automotive products. The administration has ten days to implement the court’s order.
Currently, market predictions suggest a mere 2% chance of a 25 basis point rate cut following the Federal Open Market Committee (FOMC) meeting scheduled for June 17-18.
Euro and Yen Movements
In contrast, the euro has appreciated by 0.61%, recovering from a one-and-a-half-week low as the dollar weakened. The euro’s initial decline came during overnight trading when the dollar rose sharply due to the tariff ruling.
Swaps indicate a near certainty (99% probability) of a 25 basis point rate cut by the European Central Bank (ECB) in its meeting set for June 5.
The yen has also seen a decrease against the dollar, down 0.40%. However, it rebounded from a two-week low as the dollar’s overnight gains diminished, influenced by the dovish economic updates. The yen benefited from a positive report regarding Japan’s consumer confidence index for May, which rose more sharply than anticipated.
Despite initial losses when the dollar briefly soared after the tariff ruling, the yen continued to be supported by softer U.S. economic data and a slight decline in Treasury yields, which is typically favorable for safer currencies.
Precious Metals and Economic Indicators
In the commodities sphere, June gold prices increased by $20.60 (0.63%), while July silver saw a rise of $0.110 (0.33%). Precious metals have bounced back from early setbacks, supported by the dollar’s drop. U.S. economic updates indicated a higher number of jobless claims, which typically contributes to lower Treasury yields, thereby increasing attractiveness for precious metals.
Initially, gold prices dipped to a one-week low following the court ruling on tariffs. Nevertheless, a rally in the global equity markets has somewhat tempered the demand for gold as a safe haven. Moreover, easing inflation expectations might diminish the attractiveness of gold as a hedge against inflation.
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