Dollar Rises on Strong US Economic Indicators

Headlines

1. Dollar Performance Boosted by Economic Data: The dollar index increased by 0.17%, reaching a 1.5-week high, supported by positive US economic reports on personal spending and core PCE inflation.
2. Eurozone and Yen Trends: The euro experienced a slight decline while the yen gained some support despite weaker economic indicators, with mixed impacts from regional inflation and employment data.
3. Precious Metals and Market Reactions: Precious metals saw modest declines due to a stronger dollar and mixed economic signals, though safe-haven demand and ETF investments provided some support.

The dollar index (DXY) advanced by 0.17%, achieving a 1.5-week high. This increase is attributed to positive US personal spending and core PCE reports, which alleviated concerns over a significant interest rate cut by the Federal Reserve at the upcoming FOMC meeting. Month-end position rebalancing also contributed to the dollar’s strength. However, the dollar's gains were moderated as Treasury note yields reversed early gains, affecting interest rate differentials.

In July, US personal spending rose by 0.5% month-over-month, aligning with expectations, while personal income increased by 0.3%, surpassing the forecast of 0.2%. The core PCE price index, the Federal Reserve’s preferred inflation measure, held steady at 2.6% year-over-year, better than the anticipated rise to 2.7%.

The August MNI Chicago PMI unexpectedly increased by 0.8 to 46.1, exceeding the forecast of a decline to 44.8. Meanwhile, the University of Michigan’s August consumer sentiment index was revised slightly upward to 67.9, which was lower than the expected 68.1.

In the currency markets, the euro (EUR/USD) decreased by 0.07% to a 1.5-week low. The euro faced downward pressure after Eurozone consumer prices rose at the slowest pace in three years. Despite this, losses were moderated by a record low unemployment rate in the Eurozone and supportive comments from ECB Executive Board member Schnabel regarding the pace of potential interest rate adjustments.

In August, Eurozone CPI eased to 2.2% year-over-year, with core CPI easing to 2.8%. The July unemployment rate in the Eurozone fell to a record low of 6.4%, better than the anticipated 6.5%.

The yen (USD/JPY) gained 0.24% despite weaker-than-expected Japanese economic data. Japanese economic reports, including industrial production and retail sales, showed slower growth, while the unemployment rate rose to a 17-month high. However, stronger-than-expected Tokyo consumer price indices provided some support for the yen.

In precious metals, December gold and September silver experienced modest declines. The stronger dollar and mixed US economic reports contributed to the downward pressure on precious metals. Nonetheless, ongoing safe-haven demand and increased fund buying in ETFs supported gold prices, with long positions in gold ETFs reaching a six-month high.