The dollar index experienced a notable increase of 0.44% recently, buoyed by a stronger-than-anticipated payroll report for May. This development alleviates fears regarding a potential slowdown in the US job market. Efforts from Cleveland Fed President Hammack also contributed to this momentum; her remarks suggested a preference for caution before modifying interest rates. Additionally, optimism surrounding improved trade relations between the US and China lent further support to the dollar, particularly after comments from US trade advisor Navarro indicated an upcoming meeting with Chinese officials.
In May, nonfarm payrolls rose by 139,000, surpassing the expected increase of 126,000. However, the previous month's data was revised downward, with April's nonfarm payrolls adjusted to 147,000 from an earlier estimate of 177,000. The unemployment rate for May remained stable at 4.2%, in line with expectations.
In terms of wage growth, average hourly earnings saw an increase of 0.4% month-over-month and 3.9% year-over-year, both figures exceeding forecasts of 0.3% and 3.7%, respectively. Additionally, consumer credit for April grew by $17.873 billion, reaching a four-month high and surpassing the anticipated growth of $10 billion.
Cleveland Fed President Hammack advised caution regarding interest rate adjustments, emphasizing that this is not the right time for preemptive measures. Philadelphia Fed President Harker echoed this sentiment, indicating a possibility of a rate cut later in the year if inflation trends downward and clarity in economic conditions emerges.
Market expectations are currently pricing in a negligible chance of a rate cut following the upcoming FOMC meeting on June 17-18.
The euro faced downward pressure, declining by 0.39% against the dollar. The stronger US payroll report played a large role in this shift, coupled with disappointing economic figures from the Eurozone. April retail sales in the region rose by only 0.1%, falling short of the anticipated 0.2% increase, while German industrial production saw a decline of 1.4%, significantly worse than the expected 1.0% drop.
However, a revised increase in Eurozone GDP for the first quarter to 0.6% quarter-over-quarter and 1.5% year-over-year provided some support for the euro. ECB Governing Council member Stournaras commented that the bar for additional interest rate cuts by the ECB is set high, suggesting a pause is necessary to evaluate recent economic shocks better.
Swaps currently suggest a 27% probability of a rate reduction during the ECB's policy meeting on July 24.
The Japanese yen dropped to a one-week low against the dollar, primarily due to weaker-than-expected reports on household spending and the leading economic index. Reports indicate that the Bank of Japan (BOJ) is expected to discuss potentially reducing its bond purchasing in smaller increments during the upcoming policy meeting. This speculation added further pressure to the yen.
Specifically, the leading economic index for Japan fell to a low of 103.4, revising down expectations of 103.9, while household spending unexpectedly decreased by 0.1% year-over-year, contrary to forecasts of a 1.5% increase.
In the precious metals sector, August gold contracts closed down by 28.50 points (0.84%), while July silver rose by 0.334 points (0.93%). The strength of the dollar was a significant factor affecting gold prices, alongside a rally in the S&P 500 and rising Treasury yields, which reduced safe-haven demand for precious metals.
Despite this, silver saw upward movement due in part to optimistic global economic data, positively influencing industrial demand. The strong US payroll report and a revised increase in Eurozone GDP have contributed to a favorable environment for silver, with ETF holdings reaching a nearly two-year high.
Overall, while economic indicators present a mixed landscape, certain sectors are responding positively to the recent developments in the job market and adjustments in monetary policy outlooks.
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