The dollar index fell by 0.24% on Friday, driven by comments from Fed Governor Christopher Waller, who stated, “With inflation near target and the upside risks to inflation limited, we should not wait until the labour market deteriorates before we cut the policy rate. I believe it makes sense to cut the FOMC’s policy rate by 25 basis points two weeks from now.”
The University of Michigan’s July inflation expectations report also contributed to the dollar’s decline, with the 1-year inflation expectations indicator falling to a 5-month low of 4.4%. However, gains in the dollar were limited due to stronger-than-expected US housing starts and building permit reports.
EUR/USD rose by 0.20% on Friday, driven by dollar weakness and expectations of a Fed rate cut. However, Eurozone economic news was negative, with Eurozone May construction output falling 1.7% m/m and German June producer prices declining 1.3% y/y.
USD/JPY rose by 0.11% on Friday, with the yen under pressure ahead of Sunday’s upper house election in Japan. Japan’s June national CPI ex-fresh food and energy rose 3.4% y/y, stronger than expectations.
Precious metals, including gold and silver, settled higher on Friday due to a weaker dollar and lower T-note yields. Dovish comments from Fed Governor Waller and global trade tensions also boosted demand for precious metals as an inflation hedge.
President Trump’s announcement of potential tariffs on over 150 countries also contributed to the safe-haven demand for precious metals. However, gains in precious metals were limited by stronger-than-expected US economic data, including housing starts and building permit reports, as well as a better-than-expected University of Michigan consumer sentiment index.
August gold closed up $13.00 (+0.39%) to settle at a new high, while September silver closed up $0.161 (+0.42%). The dollar’s weakness and lower Treasury yields were key factors driving the gains in precious metals.
Market participants will continue to monitor economic data and central bank policies, particularly the Federal Reserve’s decision on July 29-30, for further direction. Federal funds futures prices are currently pricing in a 95% chance of a 25 basis point rate cut at the upcoming meeting
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