Dollar Climbs on a Solid US Retail Sales Report

The dollar index (DXY00) today climbed to a 2-week high, up by +0.10%. The dollar garnered support from today’s as-expected US April retail sales report.  Also, signs of progress in US-China trade negotiations are supportive of the dollar after Reuters reported that the US and China are weighing a potential framework under which each country identifies about $30 billion in goods on which tariffs could be eased without threatening national security interests.

US weekly initial unemployment claims rose +12,000 to 211,000, showing a slightly weaker labor market than expectations of 205,000.

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US Apr retail sales rose +0.5% m/m, right on expectations.  Also, Apr retail sales ex-autos rose +0.7% m/m, right on expectations.

The US Apr import price index ex-petroleum rose by +0.7% m/m, stronger than expectations of +0.5% m/m.

Swaps markets are discounting the odds at 4% for a 25 bp rate cut at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) slid to a 1-week low today and is down by -0.12%.  Today’s stronger dollar is undercutting the euro.  Losses in the euro are contained by hawkish comments from ECB Governing Council member Martins Kazaks, who said that if inflation expectations deteriorate due to rising energy prices, the ECB will be forced to raise interest rates.

ECB Governing Council member Martins Kazaks said, “Oil prices are higher, we see that it’s gradually starting to push inflation up, and if inflation expectations start to deteriorate, then the ECB will be forced to raise interest rates.”

Swaps are discounting an 82% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.

USD/JPY (^USDJPY) today is up by +0.02%.  The yen slid to a 2-week low against the dollar today. Safe-haven demand for the yen was reduced today after the Nikkei Stock Index posted a new all-time high.  Losses in the yen are limited after hawkish comments from BOJ board member Kazuyuki Masu pushed the 10-year JGB bond yield up to a 29-year high of 2.641% today.  Also, lower T-note yields today are supportive of the yen.

BOJ board member, Kazuyuki Masu, said, “If statistical data do not indicate clear signs of an economic downturn, I believe it is desirable to raise the policy interest rate at the earliest stage possible.”

The markets are discounting a +76% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.

June COMEX gold (GCM26) today is down -15.40 (-0.33%), and July COMEX silver (SIN26) is down -4.588 (-5.13%).

Gold and silver prices are moving lower today, pressured by a rally in the dollar index to a 2-week high. Also, today’s rally in the S&P 500 to a new record high has curbed safe-haven demand for precious metals.  In addition, hawkish central bank comments are weighing on precious metals after ECB Governing Council member Martins Kazaks said the ECB will have to raise interest rates if inflation expectations deteriorate, and BOJ board member Kazuyuki Masu said the BOJ should raise interest rates as soon as possible, as long as the economy doesn’t deteriorate.

Precious metals have safe-haven support after the US and Iran failed to come to an agreement to end the war, which could lead to renewed hostilities in the Middle East.  Silver prices also have carryover support from Wednesday’s rally in copper to a new record high.  Copper prices are soaring as a squeeze on Middle Eastern sulfur supplies, driven by the closure of the Strait of Hormuz, threatens the production outlook for some global copper mines, as sulfur is used in processing about a sixth of global copper.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 5-month low on March 31 after climbing to a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to a 9-month low last Tuesday after rising to a 3.5-year high on December 23.

Strong central bank demand for gold is supportive of gold prices, following last Thursday’s news that bullion held in China’s PBOC reserves rose 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 boosted its gold reserves.

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. This article was originally published on Barchart.com