Dollar Weakens on Dovish Fed Comments

Yahoo

06-08-2025

The dollar index (DXY00) today is down by -0.37% at a 1-week low. Hawkish comments today from ECB Governing Council member Holzmann boosted EUR/USD to a 1-week high and undercut the dollar when he said he sees no need for the ECB to cut interest rates further. The dollar is also under pressure from increased expectations for a Fed rate cut after the recent weaker-than-expected US payroll and PMI reports. The dollar dropped to its lows today after Minneapolis Fed President Neel Kashkari said it may be appropriate to cut interest rates in the near term.
Also, questions about the Fed's credibility continue to weigh on the dollar after Fed Governor Adriana Kugler resigned last Friday, which could prompt President Trump to nominate a new governor who is more dovish and could undermine Fed Chair Powell's influence.
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Minneapolis Fed President Neel Kashkari said, "The economy is slowing and in the near term it may become appropriate to start adjusting the federal funds rate lower."
In recent tariff news, President Trump said Tuesday that US tariffs on semiconductor and pharmaceutical imports would be announced "within the next week or so." On Monday, Mr. Trump said that he would be "substantially raising" the tariff on US imports from India from the current 25% due to India's purchases of Russian oil. Last Thursday, President Trump raised tariffs on some Canadian goods to 35% from 25% and announced a 10% global minimum, along with tariffs of 15% or higher for countries with trade surpluses with the US, effective after midnight on August 7. According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 94% at the September 16-17 FOMC meeting and 64% at the following meeting on October 28-29.
EUR/USD (^EURUSD) today is up by +0.44% at a 1-week high. The euro is moving higher today on hawkish comments from ECB Governing Council member Holzmann, who said he sees no reason for the ECB to cut interest rates again. Gains in the euro are limited after German June factory orders unexpectedly posted their biggest decline in 5 months. Also, the euro is struggling due to concerns that President Trump's tariff policies will curb economic growth in the Eurozone.
Eurozone June retail sales rose +0.3% m/m, right on expectations.
German June factory orders unexpectedly fell -1.0% m/m, weaker than expectations of a +1.1% m/m increase and the biggest decline in 5 months.
ECB Governing Council member Holzmann said, "In my view, there is no longer any reason for the ECB to lower interest rates further and we should wait and see what economic developments arise, particularly outside Europe, and how we respond to them."
Swaps are pricing in a 13% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) today is down by -0.16%. The yen strengthened today against the dollar after Japan's nominal wages in June accelerated from May, a hawkish factor for BOJ policy. Gains in the yen are limited by higher T-note yields. Also, the yen has negative carryover from Tuesday when the minutes of the June 16-17 BOJ meeting showed policymakers were concerned about ending its QE program too quickly.
Japan's June labor cash earnings rose +2.5% y/y from +1.4% y/y in May, although weaker than expectations of +3.1% y/y.
December gold (GCZ25) today is down -5.80 (-0.17%), and September silver (SIU25) is up +0.117 (+0.31%). Precious metals today are mixed. Today's fall in the dollar index to a 1-week low is bullish for metals. Also, dovish comments today from Minneapolis Fed President Neel Kashkari were bullish for precious metals when he said it may be appropriate to cut interest rates in the near term. Demand for precious metals as a store of value has increased after recent weaker-than-expected US economic news may prompt the Fed to cut interest rates as soon as next month. The chance of a Fed interest rate cut at the September FOMC meeting has risen to 94% today from 40% last Friday.
Gains in precious metals prices are limited, and gold turned lower today on hawkish comments from ECB Governing Council member Holzmann, who said there is no longer any reason for the ECB to lower interest rates further. Higher T-note yields today are also weighing on precious metals.
Precious metals still have safe-haven support on concerns that President Trump's tariff policies will weigh on global economic growth prospects. Finally, precious metals continue to receive safe-haven support from geopolitical risks, including the conflicts in Ukraine and the Middle East.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com