The dollar index (DXY00) Thursday rose by +0.37%.  The dollar moved higher Thursday on signs of strength in the economy after weekly jobless claims fell to a 1-month low and the May S&P manufacturing PMI unexpectedly increased, hawkish factors for Fed policy. 

However, gains in the dollar are limited after the House on Thursday passed President Trump's tax and spending plan, which will add to the burgeoning US budget deficit.  The bill now goes to the Senate for approval.

The dollar still has some negative carryover from last Friday when Moody's Ratings downgraded the US government's credit rating from Aaa to Aa1, citing a ballooning budget deficit and fiscal concerns.  The downgrade put the dollar's status as a global reserve currency into question and may prompt some investors to lighten up on their dollar assets. 

Also, dovish comments on Thursday from Fed Governor Waller were negative for the dollar when he said the Fed could cut interest rates the second half of the year if tariffs settle near 10%. 

US weekly initial unemployment claims unexpectedly fell -2,000 to a 1-month low of 227,000, showing a stronger labor market than expectations of an increase to 230,000.

The US May S&P manufacturing PMI unexpectedly rose +1.9 to 52.3 versus expectations of a decline to 49.9.

US Apr existing home sales unexpectedly fell -0.5% m/m to a 7-month low of 4.00 million, weaker than expectations of an increase to 4.10 million.

Fed Governor Waller said if the Trump administration's tariffs on US trading partners settle around 10% this summer, "then we're in a good position at the Fed to kind of move with rate cuts through the second half of the year."

The markets are discounting the chances at 5% for a -25 bp rate cut after the June 17-18 FOMC meeting.

EUR/USD (^EURUSD) Thursday fell by -0.42%.  Thursday's dollar strength weighed on the euro.  The euro also fell on the dovish summary of the ECB's April 16-17 policy meeting, where members signaled a bias toward further monetary easing. In addition, Thursday's monthly report from the Bundesbank was bearish for the euro, as it said that after modest growth in Q1, output in Germany would probably stagnate in Q2.

Losses in the euro were limited Thursday after the Eurozone May S&P manufacturing PMI rose more than expected to a 2-3/4 year high.  Also, the German May IFO business climate index rose more than expected to an 11-month high.

The Eurozone May S&P manufacturing PMI rose +0.4 to a 2-3/4 year high of 49.4, stronger than expectations of 49.2.  However, the May S&P composite PMI unexpectedly fell -0.9 to a 6-month low of 49.5, weaker than expectations of an increase to 50.6.

The German May IFO business climate index rose +0.6 to an 11-month high of 87.5, stronger than expectations of 87.3.

The April 16-17 ECB meeting summary was dovish as policymakers expressed concern about the negative economic impact of US tariffs and signaled a bias toward additional monetary easing.  Policymakers also said, "Even with the additional spending on defense and infrastructure, it was likely that, on balance, Eurozone growth would be worse in 2025 than previously expected."

In its monthly report, the Bundesbank said that after modest growth in Q1, output would probably stagnate in Q2, citing a "wide range of negative factors" that are compounded by US trade tariffs hitting German exporters.  Also, "due to the economic downturn, uncertainty about the future economic development, and lower inflation rates, wage settlements are likely to remain significantly lower than in the past two years." 

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 +0.29%.  The yen retreated from a 2-week high against the dollar Thursday and turned lower after Treasury Secretary Bessent and Japanese Finance Minister Kato said currency levels weren't discussed in a meeting in Canada.  The officials said exchange rates should be determined by the market, which suggests the US has no issue with the yen's level after President Trump earlier accused Japan of taking an unfair advantage by lowering the yen's value.  The stabilization of stocks on Thursday also reduced safe-haven demand for the yen.

The yen on Thursday initially moved higher on strength in Japanese economic news after Mar core machine orders unexpectedly rose at the fastest pace in 17 years, and the May Jibun Bank manufacturing PMI rose.  Also, rising Japanese government bond yields supported the yen after the 10-year JGB bond yield jumped to a 1-3/4 month high Thursday of 1.582%.  In addition, hawkish comments on Thursday from BOJ Board member Noguchi boosted the yen when he said the BOJ doesn't need to step into the bond market to take action against a recent spike in long-term bond yields. 

Japan Mar core machine orders unexpectedly rose +13.0% m/m, stronger than expectations of a decline of -1.6% m/m and the largest increase in 17 years.

The Japan May Jibun Bank manufacturing PMI rose +0.3 to 49.0.  However, the May Jibun Bank services PMI fell -1.6 to 50.8. 

BOJ Board member Noguchi said the BOJ doesn't need to step into the bond market to take action against a recent spike in long-term bond yields, as the moves are not necessarily abnormal.

June gold (GCM25) Thursday closed down -18.50 (-0.56%), and July silver (SIN25) closed down -0.427 (-1.27%).  Precious metals on Thursday gave up an early advance and turned lower, with gold falling from a 1-1/2 week high and silver falling from a 3-1/2 week high.  Thursday's stronger dollar weighed on metals prices. Also, Thursday's stock rebound curbed safe-haven demand for precious metals.  Gold prices continue to be undercut by fund liquidation as long gold positions in ETFs fell to a 1-3/4 month low on Wednesday. 

Precious metals on Thursday initially moved higher on worries about rising US deficits that boosted precious metals as a store of value after the House passed President Trump's tax and spending bill.  Dovish comments Thursday from Fed Governor Waller also boosted precious metals when he said the Fed could cut interest rates in the second half of this year if tariff increases settle around 10%.  Finally, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals.