The dollar index (DXY00) Friday fell from a 4-week high and finished down by -0.29%. Long liquidation pressures weighed on the dollar ahead of this weekend’s US-China trade talks in Switzerland. Losses in the dollar accelerated Friday after New York Fed President Williams said he expects economic growth in the US this year to be “considerably slower” than in 2024, which was a dovish statement for Fed policy.
Fed Governor Kugler said the Fed should hold interest rates steady for now, citing a stable US economy and uncertainty around President Trump’s tariffs policy.
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New York Fed President Williams said he expects economic growth in the US this year to be “considerably slower” than in 2024, and he anticipates higher inflation and unemployment.
The markets are discounting the chances at 17% for a -25 bp rate cut after the June 17-18 FOMC meeting.
EUR/USD (^EURUSD) Friday recovered from a 4-week low and rose by +0.24%. Friday’s weaker dollar sparked some short covering in the euro. Also, Friday’s jump in the 10-year German bund yield to a 4-week high strengthened the euro’s interest rate differentials. Gains in the euro were limited by Friday’s dovish comments from ECB Governing Council members Simkus and Rehn, who both said they favored an ECB interest rate cut at next month’s policy meeting.
ECB Governing Council member Simkus said, “Another interest rate cut by the ECB in June is needed” as the Eurozone is yet to feel the full force of US tariffs, and inflation is expected to continue to slow.
ECB Governing Council member Rehn said the ECB should cut interest rates next month if its new financial forecasts confirm an outlook of disinflation and waning growth momentum.
Swaps are discounting the chances at 93% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Friday fell by -0.40%. The yen strengthened against the dollar Friday on the increase in safe-haven demand for the yen as trade tensions resurfaced when US Commerce Secretary Lutnick said a trade deal with Japan could take significantly more time to complete than the framework agreement President Trump announced Thursday with the UK. Gains in the yen accelerated on Friday after T-note yields fell. Japanese economic news on Friday was mixed for the yen after March household spending rose more than expected, but March labor cash earnings rose less than expected.
The Japan Mar leading index CI fell -0.5 to 107.7, stronger than expectations of 107.5.
Japan Mar labor cash earnings rose +2.1% y/y, weaker than expectations of +2.5% y/y.
Japan’s Mar household spending rose +2.1% y/y, stronger than expectations of +0.2% y/y.
June gold (GCM25) Friday closed up +38.00 (+1.15%), and July silver (SIN25) closed up +0.297 (+0.91%). Precious metals prices on Friday posted moderate gains. Friday’s dollar weakness was bullish for metals prices. Also, dovish comments Friday from ECB Governing Council members Simkus and Rehn boosted demand for precious metals as a store of value when they said they favored an ECB interest rate cut at next month’s policy meeting. An increase in inflation expectations also boosts demand for gold as an inflation hedge after Friday’s US 10-year breakeven inflation rate climbed to a 5-week high. In addition, escalating geopolitical risks in South Asia have boosted safe-haven demand for precious metals after India conducted military strikes against Pakistan in response to a militant attack in Kashmir. Finally, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas conflict continues and as Israel launched an airstrike on Houthi rebels in Yemen.
Gains in precious metals on Friday were limited by long liquidation and position squaring ahead of this weekend’s trade talks between the US and China. Also, comments on Friday from New York Fed President Williams weighed on silver prices when he said he expects economic growth in the US this year to be “considerably slower” than in 2024, a bearish factor for industrial metal demand.
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