The dollar index (DXY00) climbed 0.29% on Thursday, reaching a two-week high, bolstered by robust US economic signals and progress in international trade discussions. Support came from the as-expected US April retail sales report, signaling a resilient US economy, as well as a Reuters report indicating that the US and China are exploring a framework to ease tariffs on approximately $30 billion worth of goods without compromising national security. Comments from Kansas City Fed President Jeff Schmid, who affirmed the US economy’s sound fundamentals, further supported the dollar, though he also identified inflation as the most pressing risk.
Despite these positive indicators, US weekly initial unemployment claims rose by 12,000 to 211,000, slightly exceeding expectations of 205,000 and suggesting a marginally weaker labor market. April retail sales, both overall and excluding autos, met expectations with increases of 0.5% and 0.7% month-over-month, respectively. The US April import price index, excluding petroleum, surpassed forecasts, rising 0.7% month-over-month against an expected 0.5%. Swaps markets are currently pricing in only a 4% chance of a 25 basis point rate cut at the next FOMC meeting on June 16-17.
In currency markets, the EUR/USD (^EURUSD) fell 0.30% to a two-week low on Thursday, primarily weakened by the stronger dollar. However, hawkish remarks from ECB Governing Council member Martins Kazaks helped limit the euro’s losses. Kazaks indicated that the ECB would be compelled to raise interest rates if rising energy prices lead to a deterioration in inflation expectations. Swaps markets are now discounting an 80% chance of a 25 basis point rate hike by the ECB at its June 11 policy meeting.
The USD/JPY (^USDJPY) advanced 0.25%, pushing the yen to a two-week low against the dollar. The yen’s safe-haven appeal diminished after the Nikkei Stock Index reached a new all-time high. Nevertheless, its losses were contained by hawkish comments from BOJ board member Kazuyuki Masu, which drove the 10-year JGB bond yield to a 29-year high of 2.641%. Additionally, lower T-note yields offered some support for the yen. Markets are now pricing a 76% chance of a 25 basis point BOJ rate hike at the June 16 policy meeting.
Precious metals declined, with June COMEX gold (GCM26) closing down 0.45% and July COMEX silver (SIN26) dropping 4.52%. Gold and silver prices settled lower, primarily pressured by the rally in the dollar index to a two-week high and the S&P 500 reaching a new record, which curbed safe-haven demand. Hawkish central bank comments further weighed on precious metals, including Kansas City Fed President Jeff Schmid’s emphasis on inflation as a key risk, ECB’s Martins Kazaks’s readiness to raise rates if inflation expectations worsen, and BOJ’s Kazuyuki Masu’s call for prompt interest rate increases.
Despite these pressures, precious metals found some safe-haven support amid reports of the US and Iran’s failure to agree on ending the war, raising concerns about renewed hostilities in the Middle East. Silver prices also benefited from Wednesday’s surge in copper to a new record high. Copper prices are soaring due to a squeeze on Middle Eastern sulfur supplies, driven by the closure of the Strait of Hormuz, which threatens the production outlook for some global copper mines given sulfur’s critical role in processing about a sixth of the world’s copper.
However, recent fund liquidation in precious metals suggests a bearish trend, as long holdings in gold ETFs fell to a five-month low on March 31 after hitting a 3.5-year high on February 27. Similarly, silver ETF long holdings reached a nine-month low last Tuesday, following a 3.5-year high on December 23. Counteracting this, strong central bank demand for gold remains supportive, notably with China’s PBOC reserves increasing by 260,000 ounces to 74.64 million troy ounces in April, marking the largest monthly rise in a year and the eighteenth consecutive month of accumulation.
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