The dollar index (DXY00) today is down by -0.31% and posted a 6-week low.  The dollar retreated today after US weekly jobless claims unexpectedly rose to a 7-3/4 month high, a dovish factor for Fed policy.  The dollar was also pressured after US Q1 nonfarm productivity was revised lower and Q1 unit labor costs were revised higher.  The dollar extended its losses after EUR/USD rallied on hawkish comments from ECB President Lagarde.

The dollar briefly recovered from early losses today after China’s state-run Xinhua News Agency reported that US President Trump spoke with Chinese President Xi Jinping by telephone. The dollar also garnered some support after the US Apr trade deficit narrowed to a 20-month low. 

US weekly initial unemployment claims unexpectedly rose +8,000 to a 7-3/4 month high of 247,000, showing a weaker labor market than expectations of a decline to 235,000.

The US Apr trade deficit shrank to a 20-month low of -$61.6 billion, narrower than expectations of -$66.0 billion.

US Q1 nonfarm productivity was revised lower to -1.5% from -0.8%.  Q1 unit labor costs were revised upward to 6.6% from the previously reported 5.7%.

Wednesday evening, Minneapolis Fed President Kashkari said, “The economy is seeming like it’s pretty resilient so far, and so for me right now is the time to get data, see how the tariff negotiations shake out before we reach any firm conclusions about the direction of interest rates.”

The markets are discounting the chances at 1% for a -25 bp rate cut after the June 17-18 FOMC meeting.

EUR/USD (^EURUSD) today is up by +0.47% at a 6-week high.  The euro raced higher today on comments from ECB President Lagarde, who said the ECB is getting toward the end of its rate cut cycle with today’s rate cut.   Also, today’s unexpected increase in German Apr factory orders was supportive of the euro.

The euro moved higher despite today’s action by the ECB to cut interest rates by -25 bp.  Also, today’s weaker-than-expected Eurozone Apr PPI is dovish for ECB policy.  In addition, comments today from ECB President Lagarde were bearish for the euro when she said risks to growth “tilted to the downside.” 

Eurozone Apr PPI fell -2.2% m/m and rose +0.7% y/y, weaker than expectations of -2.1% m/m and +1.1% y/y.

German Apr factory orders unexpectedly rose +0.6% m/m, stronger than expectations of -1.5% m/m.

The ECB, as expected, cut the deposit facility rate by -25 bp to 2.00% from 2.25% and said, “Inflation is currently at around the Governing Council’s 2% medium-term target.”

ECB President Lagarde said risks to growth “tilted to the downside” as recent survey data points to weaker near-term prospects for the Eurozone economy.  However, a stronger labor market and rising incomes will help the economy, and she wouldn’t exclude further upward revisions to growth.  She added that the ECB is getting toward the end of its rate cut cycle with today’s rate cut.

Swaps are discounting the chances at 43% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

USD/JPY (^USDJPY) today is up by +0.34%.  The yen is under pressure from today’s economic news that showed Japan’s Apr cash earnings rose less than expected, a sign of slack wage pressures that are dovish for BOJ policy.  The yen is also weighed down by negative carryover from Wednesday when Reuters reported that the BOJ is considering slowing the pace of tapering in its bond purchases as of the next fiscal year, a bearish factor for the yen.

Japan Apr labor cash earnings rose +2.3% y/y, unchanged from March and weaker than expectations of +2.6% y/y.

August gold (GCQ25) today is up +3.00 (+0.09%), and July silver (SIN25) is up +1.462 (+4.22%).  Precious metals today are moving higher, with gold posting a 4-week high and silver soaring to a 13-year high.  Today’s slump in the dollar index to a 6-week low is bullish for metals.  Also, today’s action by the ECB to cut interest rates by 25 bp is supportive of precious metals demand as a store of value.  In addition, today’s US economic news, which showed that weekly jobless claims unexpectedly rose to a 7-3/4 month high, is dovish for Fed policy and positive for precious metals.  Finally, precious metals prices have continued safe-haven support from global trade tensions and geopolitical tensions in Ukraine and the Middle East.

Gold fell back from its best levels, and silver prices soared on hopes of an easing of US-China trade tensions after the Xinhua news agency reported that US President Trump and Chinese President Xi Jinping spoke by telephone today.  Gold prices also came under pressure due to hawkish comments from ECB President Lagarde, who said the ECB is getting toward the end of its rate cut cycle with today’s rate cut.