Dollar Strengthens Amid Robust US Data and Fed Tightening Signals

The dollar index (DXY00) climbed 0.27% on Thursday, driven by stronger-than-anticipated US economic indicators and elevated Treasury yields. Weekly jobless claims dropped to a 10-week low of 208,000, surpassing expectations of a 217,000 increase. June retail sales rose 0.2% month-over-month, meeting forecasts, though sales excluding automobiles missed estimates with a 0.2% decline. The July Philadelphia Fed business outlook survey surged to 41.4, a 4.5-year peak, significantly exceeding expectations of 12.5.

Hawkish remarks from Kansas City Fed President Jeff Schmid and Dallas Fed President Lorie Logan reinforced expectations for prolonged restrictive monetary policy. Schmid emphasized inflation’s persistence above target, while Logan advocated for modestly higher rates to balance price stability and employment goals. Heightened US-Iran tensions, including recent airstrikes and Iranian missile responses, could further boost oil prices and support the dollar through potential Fed policy adjustments.

The euro slipped 0.23% against the dollar, with losses partially offset by rising European bond yields. The 10-year German Bund yield hit a 1.75-month high of 3.164%. Meanwhile, the yen weakened 0.14% amid dollar strength and elevated US yields, though safe-haven demand limited declines after a 2% drop in Japan’s Nikkei. Markets see a 10% probability of a 25-basis-point Fed hike at July’s FOMC meeting, while the ECB faces a 7% chance of a similar move. The BOJ has a 1% likelihood of tightening, with USD/JPY trading near 160 amid intervention risks.

Gold and silver prices plunged, with August COMEX gold down 1.47% and September silver falling 2.17% to multi-week lows. Hawkish Fed rhetoric and weakening ETF holdings—gold ETFs at 9.5-month lows, silver at 11.75-month lows—pressured metals. Central bank demand, however, provided support after China’s PBOC added 480,000 ounces to reserves for the 20th straight month.

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