The dollar index (DXY00) on Thursday rose by +0.41% and posted at a 1.5-week high.  The dollar garnered support from hawkish Fed comments.  Kansas City Fed President Jeffrey Schmid said “modestly restrictive” monetary policy is still appropriate due to inflation risks.  Meanwhile, Cleveland Fed President Beth Hammack said she doesn’t support cutting interest rates. 

The dollar added to its gains on stronger-than-expected US PMI and existing home sales reports.  In addition, weakness in stocks on Thursday also boosted liquidity demand for the dollar.

The dollar was undercut by signs of US labor market weakness after weekly initial jobless claims rose to a 2-month high and weekly continuing claims rose to a 3.75-year high.  The dollar was also undercut by concerns about the Fed’s independence after President Trump called for Fed Governor Lisa Cook to resign amid a probe into two personal mortgages. 

US weekly initial unemployment claims rose by +11,000 to a 2-month high of 235,000, showing a weaker labor market than expectations of an increase to 225,000.  Weekly continuing claims rose +30,000 to a 3.75-year high of 1.972 million, higher than expectations of 1.960 million, showing people out of work are finding it harder to land a new job. 

The US Aug Philadelphia Fed business outlook survey fell -16.2 to -0.3, weaker than expectations of 6.5.

The Aug US S&P manufacturing PMI unexpectedly rose +4.5 to a 3-year high of 53.3, better than expectations of a decline to 49.7.

US July existing home sales unexpectedly rose +2.0% m/m to 4.01 million, stronger than expectations of -0.3% m/m to 3.92 million.

Kansas City Fed President Jeffrey Schmid said inflation risks are marginally higher than risks to the labor market, and “modestly restrictive” monetary policy is still appropriate. 

Cleveland Fed President Beth Hammack said, “We have inflation that’s too high and has been trending upwards over the past year. With the information I have, if the FOMC meeting were tomorrow, I would not see a case for reducing interest rates.”

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 72% at the September 16-17 FOMC meeting and at 49% for a second -25 bp rate cut at the following meeting on October 28-29.

EUR/USD (^EURUSD) on Thursday fell by -0.36% and posted a 1-week low.  The euro was under pressure on Thursday due to a stronger dollar.  Losses in the euro accelerated Thursday after the Eurozone’s August consumer confidence index fell more than expected to a 4-month low.  In addition, doubts about an imminent end to the Russian-Ukrainian war are weighing on the euro after Russian Foreign Minister Lavrov said Russia should have a say in security arrangements for Ukraine, and that any unilateral guarantees would be “hopeless.” 

The euro garnered some support on signs of strength in the Eurozone economy after the Eurozone Aug S&P manufacturing PMI unexpectedly expanded at the strongest pace in 3 years, and the Aug composite PMI unexpectedly rose to a 15-month high.

The Eurozone Aug S&P manufacturing PMI unexpectedly rose +0.7 to 50.5, stronger than expectations of a decline to 49.5 and the fastest pace of expansion in 3 years.  The Aug composite PMI unexpectedly rose +0.2 to a 15-month high of 51.1, stronger than expectations of a decline to 50.6.

The Eurozone Aug consumer confidence index fell -0.8 to a 4-month low of -15.5, weaker than expectations of no change at -14.7.

On the geopolitical front, US Vice President Vance said negotiations over ending Russia’s war in Ukraine are focused on security guarantees for Ukraine and territory Russia wants to control, including Ukrainian territory that it currently isn’t occupying, as the US tries to broker a peace deal between the two countries. The US is working to set up a meeting between President Putin and Zelensky, and if that meeting goes well, President Trump said he’ll look to follow up with a trilateral summit with the leaders.  The outcome could have macroeconomic implications regarding tariffs and oil prices, and could, of course, have significant consequences for European security.

Swaps are pricing in a 3% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.

USD/JPY (^USDJPY) on Thursday rose by +0.71%.  The yen fell to a 1-week low against the dollar after better-than-expected US economic news and hawkish Fed comments boosted the dollar. Also, higher T-note yields on Thursday weighed on the yen.  In addition, the yen is weaker on concerns that higher US tariffs on Japanese exports will slow Japan’s economy.  Thursday’s Japanese manufacturing news was supportive for the yen after the Japan Aug S&P manufacturing PMI rose +1.0 to 49.9. 

December gold (GCZ25) on Thursday closed down -6.90 (-0.20%), and September silver (SIU25) closed up +0.306 (+0.81%).  Precious metal prices settled mixed on Thursday.  Thursday’s rally in the dollar index to a 1.5-week high was bearish for metals.  Also, higher global government bond yields on Thursday were bearish for precious metals. In addition, hawkish Fed comments undercut gold prices when Kansas City Fed President Jeffrey Schmid said inflation risks are marginally higher than risks to the labor market, and Cleveland Fed President Beth Hammack said she doesn’t support cutting interest rates. 

Thursday’s US initial unemployment claims report showed weakness in the labor market, which was dovish for Fed policy and supportive for precious metals.  Also, an increase in US political uncertainty and concerns about Fed independence boosted safe-haven demand for precious metals after President Trump called for Fed Governor Lisa Cook to resign amid allegations of mortgage fraud.  Gold continues to have safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East. 

Silver prices garnered support Thursday on signs of stronger demand for industrial metals after the US Aug S&P manufacturing PMI unexpectedly expanded at the fastest pace in three years, and the Eurozone Aug S&P manufacturing PMI unexpectedly expanded at its strongest pace in three years.  Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a 2-year high last Friday, and silver holdings in ETFs reached a 3-year high on Tuesday.