The dollar index (DXY00) Thursday rose by +1.04% and posted a 3-1/2 week high. The dollar rallied Thursday on easing global trade tensions after President Trump announced a new comprehensive trade deal with the UK.  The dollar also found support after US weekly jobless claims fell more than expected and Q1 unit labor costs rose more than expected, hawkish factors for Fed policy. In addition, the dollar has carryover support from Wednesday when Fed Chair Powell said, “I don’t think we need to be in a hurry to adjust interest rates.” Gains in the dollar accelerated Thursday after President Trump said he would lower tariffs against China if weekend trade talks with Chinese negotiators go well. 

US weekly initial unemployment claims fell -13,000 to 228,000, showing a stronger labor market than expectations of 230,000.

US Q1 nonfarm productivity fell -0.8%, right on expectations and the first decline in 2-3/4 years.  Q1 unit labor costs rose +5.7%, which is stronger than expectations of +5.1% and the most in a year.

The markets are discounting the chances at 20% for a -25 bp rate cut after the June 17-18 FOMC meeting.

EUR/USD (^EURUSD) Thursday fell by -0.73% and posted a 3-1/2 week low. On Thursday, the euro gave up early gains and turned lower as the dollar rallied sharply on positive US trade news. The euro initially moved higher Thursday after German Mar industrial production rose more than expected by the most in almost 3-1/2 years.  Also, higher German bund yields today have strengthened the euro’s interest rate differentials.

German Mar industrial production rose +3.0% m/m, stronger than expectations of +1.0% m/m and the biggest increase in almost 3-1/2 years.

German trade news was mixed as German Mar exports rose +1.1% m/m, stronger than expectations of +1.0% m/m. However, Mar imports unexpectedly fell -1.4% m/m versus expectations of a +0.4% m/m increase.

Swaps are discounting the chances at 95% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

USD/JPY (^USDJPY) Thursday rose by +1.50%.  The yen tumbled to a 4-week low against the dollar on Thursday due to reduced safe-haven demand after President Trump announced a trade deal with the UK, easing global trade tensions.  The yen was also under pressure from the dovish minutes of the March 18-19 BOJ meeting.  Losses in the yen accelerated Thursday after the 10-year T-note yield climbed to a 2-week high.

The minutes of the March 18-19 BOJ meeting were slightly dovish as one member said the BOJ would need to be “particularly cautious” when considering the timing of interest rate hikes if the possibility of severe impact from the US tariff campaign increases. Also, one member said it doesn’t seem necessary to make any major changes to the current plan to reduce bond purchases, and another member said it is appropriate to maintain the current policy for the time being.

June gold (GCM25) Thursday closed down -85.90 (-2.53%), and July silver (SIN25) closed down -0.174 (-0.53%).  Precious metals prices retreated on Thursday after the dollar index rallied to a 3-1/2 week high. Also, easing global trade tensions has curbed safe-haven demand for precious metals after President Trump announced a trade deal with the UK.  Higher global bond yields on Thursday also weighed on precious metals.  In addition, precious metals have had a negative carryover since Wednesday when Fed Chair Powell said, “I don’t think we need to be in a hurry to adjust interest rates.” Losses in precious metals accelerated Thursday when the S&P 500 rallied sharply to a 6-week high after President Trump said if US-China trade talks this weekend go well, tariffs could be lowered.

Losses in silver prices were limited Thursday after German Mar industrial production posted its largest increase in almost 3-1/2 years, a supportive factor for industrial metals demand. Also, Thursday’s US trade deal with the UK bolsters hopes that crippling tariffs by President Trump will be negotiated down, averting lasting damage to economic growth and industrial metals demand.

On the positive side for precious metals was Thursday’s action by the BOE to cut interest rates, which boosts demand for precious metals as a store of value.  Also, escalating geopolitical risks in South Asia have boosted safe-haven demand for precious metals after India conducted military strikes against Pakistan in response to a militant attack in Kashmir.  In addition, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas conflict continues and as Israel launched an airstrike on Houthi rebels in Yemen.