Dollar Stabilizes as Global Markets Rally

The dollar index concluded Friday with a marginal decline of 0.02%, maintaining its position just above the previous session’s three-month low. The robust performance in stock markets diminished liquidity demands for the US currency, while lingering effects from the US Treasury’s recent initiatives to enhance liquidity and expand bond buybacks continued to exert downward pressure. Compounding this, the day’s US economic releases presented a divergent outlook, with the manufacturing PMI falling short of forecasts, though the services sector showed unexpected strength.

The August S&P Global US Manufacturing PMI decreased to 53.2, below the anticipated unchanged reading of 53.9. In contrast, the Services PMI surged to 56.8, exceeding expectations and representing the fastest expansion in four and a half years.

Market participants are currently pricing in a 40% likelihood of a 25 basis point Federal Reserve rate hike at the September 15-16 meeting.

EUR/USD advanced to match its three-month high, closing with a 0.02% gain. The euro drew support from positive Eurozone economic data, including better-than-expected manufacturing and composite PMI figures and a rise in consumer confidence to a six-month peak. However, the currency’s gains were tempered by a dovish shift in ECB inflation expectations.

The Eurozone August manufacturing PMI unexpectedly climbed to 52.8, the highest level in over four years, while the composite PMI also beat forecasts at 52.1.

< p>ECB’s July one-year CPI expectations eased to 2.9% from 3.0% in June, with three-year expectations dipping to 2.7% from 2.8%.

Consumer confidence in the Eurozone improved more than expected, rising to -15.5, its highest point in six months.

The markets are discounting a 95% probability of a 25 basis point ECB rate hike at the September 10 policy meeting.

USD/JPY fell by 0.02%, as the yen recorded modest gains. This followed indicators of Japanese economic resilience, with the manufacturing PMI reaching its strongest level in eight and a half years, and inflation accelerating. However, higher US Treasury yields capped further yen strength.

Japan’s August manufacturing PMI held at 55.1, matching the April peak, while the services PMI increased to 52.3, the best performance in five months.

Japan’s national CPI rose by 1.9% year-on-year in July, aligning with expectations, as did the core CPI measure excluding fresh food and energy.

The yen benefits from heightened expectations of a Bank of Japan rate hike, fueled by government support for monetary tightening to address yen weakness and inflation. Recent coordinated intervention also provides a foundation, though weak interest rate differentials persist.

Markets are pricing an 81% chance of a 25 basis point BOJ rate hike at the September 18 meeting.

October COMEX gold closed up 2.38%, and September COMEX silver gained 2.09%, reaching three-month and two-month highs respectively. The softer dollar and concerns over currency debasement from US Treasury actions drove demand for precious metals as stores of value.

Robust global manufacturing activity, evidenced by strong PMI readings in Europe and Japan, signaled healthy demand for industrial metals, underpinning silver prices.

Fund support remained bullish, with gold ETF holdings climbing to a two-and-a-half-month high and silver ETF holdings reaching a four-month peak earlier in the week.

Central bank demand for gold continued, with China’s PBOC increasing its reserves for the twenty-first consecutive month in July, adding 640,000 ounces to reach 76.08 million troy ounces.

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