The dollar index (DXY00) on Thursday rose by +0.23%.  The dollar recovered from a 1.5-week low today and turned higher on reports that President Trump was seen as favoring Fed Governor Waller to be the new Fed Chair.  The appointment of Waller as Fed Chair would ease market concerns about the Fed Chair being a yes man for President Trump, as Waller said back in April that the Fed's independence is "critical to the well-functioning of the US economy." Higher T-note yields on Thursday also supported the dollar.

The dollar initially moved lower Thursday on a larger-than-expected increase in weekly US jobless claims, a dovish factor for Fed policy.  Also, dovish comments from San Francisco Fed President Mary Daly weighed on the dollar when she said it may be appropriate for the Fed to cut interest rates in the "coming months." 

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.

US weekly initial unemployment claims rose +7,000 to 226,000, showing a weaker labor market than expectations of 222,000.  Weekly continuing claims rose +38,000 to a 3.75-year high of 1.974 million, higher than expectations of 1.950 million and a sign that unemployed people are taking longer to secure new employment.

US Q2 nonfarm productivity rose +2.4%, higher than expectations of +2.0%. Q2 unit labor costs rose +1.6%, slightly stronger than expectations of +1.5%.

US Jun consumer credit rose by +$7.371 billion, slightly below expectations of +$7.500 billion.

Late Wednesday, San Francisco Fed President Mary Daly said, "The labor market has softened, and I would see additional slowing as unwelcome.  All this means that the Fed will likely need to adjust monetary policy in the coming months."

Atlanta Fed President Raphael Bostic said he only sees one 25 bp rate cut by the Fed this year, as there are reasons to be skeptical that the inflationary effects from tariffs will be temporary.

In recent tariff news, President Trump announced Wednesday that he will impose a 100% tariff on semiconductor imports.  Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US.  However, the US will levy a separate tax on imports of electronic products that employ semiconductors.  Also, President Trump announced Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India's purchases of Russian oil.  On Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." 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 today.  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 91% at the September 16-17 FOMC meeting and 64% at the following meeting on October 28-29.

EUR/USD (^EURUSD) Thursday fell by -0.31%.  The euro retreated from a 1.5-week high Thursday and moved lower on weaker-than-expected news on German industrial production.  Also, the dollar's strength on Thursday weighed on the euro. In addition, the euro is struggling due to concerns that President Trump's tariff policies will curb economic growth in the Eurozone. 

The euro initially moved higher Thursday on hopes for an end to the Russian-Ukrainian war, with President Trump expected to meet with Russian President Putin in the next few days to discuss an end to the conflict. Also, Thursday's stronger-than-expected German trade news is supportive of the euro.   

German June industrial production fell by -1.9% m/m, weaker than expectations of -0.5% m/m and the largest decline in 11 months.

German trade news was better than expected as German June exports rose +0.8% m/m, stronger than expectations of +0.4% m/m.  Also, June imports rose +4.2% m/m, stronger than expectations of +0.8% m/m and the largest increase in 5 months.

Swaps are pricing in a 12% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.

USD/JPY (^USDJPY) Thursday rose by +0.09%.  The yen moved slightly lower against the dollar Thursday after Japan's Cabinet Office cut its Japanese 2025 GDP estimate.  Also, concerns that US tariff policies will harm the Japanese economy are weighing on the yen.  In addition, higher T-note yields on Thursday undercut the yen.  Losses in the yen were limited after Japan's June leading index CI rose more than expected. 

The Japan June leading index CI rose +1.3 to 106.1, stronger than expectations of 106.0

Japan's Cabinet Office cut its Japanese 2025 GDP estimate to 0.7% from a January estimate of 1.2% and raised its CPI estimate to 2.4% from 2.0%.

December gold (GCZ25) on Thursday closed up +20.30 (+0.59%), and September silver (SIU25) closed up +0.392 (+1.03%).  Precious metals on Thursday settled higher, with gold posting a 2-week high and silver posting a 1.5-week high.  Thursday's US weekly jobless claims report showed weakness in the US labor market, which is dovish for Fed policy and a bullish factor for precious metals.  Also, dovish comments from San Francisco Fed President Mary Daly were supportive of the demand for precious metals as a store of value when she said it may be appropriate for the Fed to cut interest rates in the "coming months." 

Gold buying by China's central bank is also supportive of gold prices as the PBOC bought 60,000 troy ounces of gold for its reserves in July, the ninth consecutive month it has boosted its gold purchases.  Finally, Thursday's action by the BOE to cut its official bank rate by -25 bp was supportive of precious metals.

Gains in precious metals prices were limited due to the strength of the dollar.  Also, an easing of geopolitical risks has curbed some safe-haven demand for precious metals on news that Presidents Trump and Putin will meet in the next few days to discuss ending the war in Ukraine. 

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.