The dollar index (DXY00) on Friday rallied to a 1.75-month high and finished up by +0.66%. The dollar recovered from early losses on Friday and surged on the stronger-than-expected US May payroll report, bolstering speculation that the next Fed move will be an interest rate increase. Also, Friday’s stock market sell-off boosted liquidity demand for the dollar.
The dollar also has safe-haven support as the US and Iran have made little progress in talks over an interim peace deal, with clashes between Israel and Hezbollah militants ongoing in Lebanon. Iran insists on a ceasefire in Lebanon before accepting a US deal to extend the truce and reopen the Strait of Hormuz. President Trump said Thursday that negotiations with Iran are in the “final” stages without elaborating, while Iran’s Foreign Minister Abbas Araghchi earlier said there had been “no tangible progress” even though both sides continue to exchange messages via mediators.
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US May nonfarm payrolls rose +172,000, stronger than expectations of +88,000. Also, Apr nonfarm payrolls were revised upward to +179,000 from the previously reported +115,000. The May unemployment rate remained unchanged at 4.3%, right on expectations.
US May average hourly earnings rose +0.3% m/m and +3.4% y/y, right on expectations.
US Apr consumer credit increased by $20.733 billion, stronger than expectations of $17.670 billion.
The swaps markets are discounting the odds at 1% for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) fell to a 1.75-month low on Friday and finished down by -0.78%. Friday’s stronger-than-expected US May payroll report pushed the dollar sharply higher and weighed on the euro. Also, Friday’s downward revision to Eurozone Q1 GDP was bearish for the euro.
Eurozone Q1 GDP was revised downward to -0.2% q/q and +0.3% y/y from the previously reported +0.1% q/q and +0.8% y/y.
The markets are discounting a +100% chance for a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) on Friday rose by +0.10%. The yen gave up early gains on Friday and fell to a 5-week low against the dollar after T-note yields jumped on the stronger-than-expected US May payroll report.
The yen initially moved higher on Friday due to stronger-than-expected Japanese economic reports on Apr household spending and Apr labor cash earnings, which were hawkish for BOJ policy. Also, the closer the yen falls to 160 per dollar, the greater the likelihood that Japanese authorities will intervene in forex markets to prop up the yen, as they have done several times recently when the yen fell below that level.
The Japan Apr leading index CI rose +0.5 to a 4.25-year high of 115.9, stronger than expectations of 114.5.
Japan Apr labor cash earnings rose +3.5% y/y, stronger than expectations of +3.1% y/y and the fastest pace of increase in 16 months.
Japan Apr household spending fell -0.5% y/y, a smaller decline than expectations of -1.5% y/y.
The markets are discounting a +94% chance of a +25 bp BOJ rate hike at the next policy meeting on June 16.
August COMEX gold (GCQ26) on Friday closed down -139.70 (-3.10%), and July COMEX silver (SIN26) closed down -4.868 (-6.68%).
Gold and silver prices plummeted to 2.5-month lows on Friday and settled sharply lower. Friday’s rally in the dollar index to a 1.75-month high sparked long liquidation in metals prices. Also, Friday’s stronger-than-expected US May payroll report bolsters the outlook for a Fed rate hike, a bearish factor for precious metals prices. In addition, higher global bond yields on Friday were negative for precious metals.
Precious metals still have safe-haven support as the US and Iran have made little progress in talks over an interim peace deal, with clashes between Israel and Hezbollah militants ongoing in Lebanon. Also, Friday’s plunge in stocks boosted some safe-haven buying of precious metals.
Recent fund liquidation of precious metals is 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. Also, long holdings in silver ETFs fell to a 9.75-month low on Thursday after rising to 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 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.
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