The dollar index experienced a significant decline on Thursday, falling by 0.71% and reaching a nadir not seen in three and a quarter years. This downturn was largely attributed to escalating trade uncertainties ignited by recent statements from President Trump. The President announced his intention to dispatch letters to numerous U.S. trading partners within the next one to two weeks, announcing unilateral tariffs that would precede a July 9 deadline associated with a previous 90-day pause on such actions. As a result, market sentiment wavered, pushing the dollar downwards.
The dollar’s losses intensified on the heels of disheartening economic indicators, which further fueled speculation surrounding potential interest rate cuts by the Federal Reserve later this year. The weekly initial jobless claims report was particularly alarming, as it showed no change from the previous week and remained at an eight-month high of 248,000. This figure was notably higher than the anticipated decline to 242,000. Continuing claims also reflected a weakening labor market, rising by 54,000 to reach a three-and-a-half-year peak of 1.956 million, surpassing expectations that had projected 1.910 million.
In the broader context of inflation and prices, the Producer Price Index (PPI) for May recorded an increase to 2.6% year-over-year, a slight uptick from April’s rate of 2.5%. Conversely, the PPI excluding food and energy showed a decline to 3.0% from 3.2%, which was better than market forecasts of 3.1%. Market analysts noted that sentiment regarding monetary policy shifted, with expectations of a 25 basis points rate cut from the Federal Open Market Committee (FOMC) meeting scheduled for June 17-18 now hovering around 3%.
As the dollar weakened, the euro rose sharply, gaining 0.78% and achieving a three-and-a-half-year high against its U.S. counterpart. This strengthening was propelled by the dual impact of trade uncertainties and lackluster economic reports from the U.S. that subsequently pressured the dollar. Moreover, comments from European Central Bank (ECB) officials added a hawkish tone to market perceptions. ECB Executive Board member Isabel Schnabel indicated that the bank’s current rate-cutting cycle may soon be nearing its end, citing positive trends in both inflation and economic performance. Simultaneously, ECB Governing Council member Virgilijus Sinkevicius expressed support for pausing interest rate adjustments, particularly in light of the considerable uncertainty surrounding U.S. tariff policies. The market is currently assigning only 13% odds for a 25 basis points rate cut by the ECB, which will be discussed at its policy meeting on July 24.
The Japanese yen similarly benefitted from the tumultuous market conditions, rising by 0.71% against the dollar. As investors sought safe-haven assets in response to President Trump’s tariff threats, the yen’s safe-haven appeal grew stronger, leading to an uptick that followed the release of disappointing U.S. economic data. Concurrently, U.S. Treasury yields faced downward pressure, reflecting the cautious sentiment that permeated the market.
Economic indicators from Japan also contributed to the atmosphere of uncertainty, revealing that the Bank of Japan’s quarterly business sentiment index for large manufacturers weakened in the second quarter, falling to -4.8, down from -2.4 in the previous quarter. This decline reflects broader concerns about the health of Japan’s manufacturing sector amid heightened global economic tensions.
In commodity markets, precious metals experienced notable gains on Thursday, with August gold closing up 1.76% and July silver rising slightly. These increases were attributed not only to the dollar’s decline but also to elevated demand for safe-haven assets in response to President Trump’s tariff threats and unsettling U.S. economic outlook. The weaker-than-expected economic reports led market participants to adopt a more dovish stance on Federal Reserve policy, further fueling bullish sentiment toward precious metals. Additionally, geopolitical tensions in the Middle East heightened safe-haven demand as U.S. authorities ordered non-essential embassy personnel to depart from Baghdad amidst threats from Iran.
Conversely, silver’s rally faced headwinds as concerns regarding industrial demand weighed on its performance. Data out of the United Kingdom indicated weaker-than-expected manufacturing production and industrial production figures for April, which may have implications for demand for industrial metals. Specifically, manufacturing production fell by 0.9% month-over-month, which was a deeper contraction than the anticipated 0.7% downturn. Meanwhile, industrial production fell by 0.6%, again exceeding expectations for a 0.5% decline. Analysts noted that the implications of potential new tariffs threatened by the U.S. could further strain economic activity and, by extension, the demand for industrial metals.
As these dynamics unfold, market participants remain vigilant, parsing through an array of economic indicators and geopolitical developments that could shape the landscape of global trade and finance in the coming months. The interplay between tariff policies, central bank decisions, and economic health will remain central to investor sentiment and market movements as uncertainty looms large over the financial horizon.