The dollar eased on the day as investors rotated away from liquidity demand, with reports on US labor and business activity coming in weaker than expected. The move also helped lift euro and yen crosses, while commodities surged—gold and silver climbed for a second straight session amid a softer US currency and improving expectations around Middle East shipping.
Key takeaways
- Dollar index down: The US dollar index fell about 0.2% as weaker US data reduced expectations for near-term policy tightening.
- Mixed US macro signals: ADP employment and the ISM services headline both missed expectations, though the ISM “price paid” component jumped.
- Rates expectations stayed the focus: Market pricing continued to reflect a high probability of additional Fed action, tempered by hawkish-but-opposing guidance from a Kansas City Fed president.
- Metals rose sharply: Gold and silver advanced strongly, supported by the weaker dollar and improved prospects for the possible reopening of the Strait of Hormuz.
- Copper strength added industrial support: A jump in copper helped underpin silver’s rally, reflecting tighter supply conditions and strong import demand.
What drove the dollar lower
Data published during the session pointed to softer momentum in parts of the US economy. The ADP employment report for July showed job growth of 44,000, below expectations for 65,000. Separately, the ISM services index rose only 0.1 to 54.1, trailing expectations of 54.5. The “price paid” sub-index in the ISM services survey, however, moved higher, rising to 70.3 from an expected decline, complicating the inflation-read-through.
The dollar’s decline was also reinforced by the broader market’s interpretation of liquidity demand. When equity trading stays firm, some investors reduce defensive hedging that tends to support the dollar.
Policy signals and rate pricing
Even as the dollar slipped, Fed pricing remained a key anchor for FX. The market was pricing a 58% probability of a 25 basis point rate hike at the next FOMC meeting scheduled for September 15–16.
Conflicting voices from central bank communication helped keep traders focused on how long restrictive policy must remain in place. Kansas City Fed President Jeff Schmid argued that current policy is not restrictive enough and said bringing inflation back to the Fed’s 2% goal would require tighter policy, according to the remarks cited in the report.
Euro and yen move as US influence fades
The euro rose as the dollar weakened. EUR/USD gained about 0.2%, with additional support coming from a revised Eurozone growth and price impulse. The Eurozone July S&P composite PMI was revised higher by 0.1 to 52.0 from 51.9.
At the same time, easing inflation dynamics limited upside for the common currency. Eurozone June PPI cooled to 4.6% year-on-year from 5.9% in May, which the market read as a dovish factor for the European Central Bank’s policy path. Ahead of the ECB’s next meeting on September 10, markets were pricing an 81% chance of a 25 basis point rate hike.
The yen also strengthened, with USD/JPY down roughly 0.2%. The move was attributed to hawkish language in the BOJ’s June 15–16 policy minutes, where most board members saw upside risks to underlying inflation and favored continued rate increases if the economy and prices evolve as expected. Support also carried over from Tuesday when the US Treasury Secretary signaled the US would continue joint foreign-exchange intervention to support Japan, as cited in the report.
Still, the yen’s gains were capped by the interest-rate gap versus the US. With Japan’s policy rate still far below the Fed’s target range, the market continued to price a 61% probability of a 25 basis point BOJ rate hike at the September 18 meeting.
Metals surge: softer dollar meets geopolitics and copper strength
Gold and silver climbed sharply, with both metals supported by the weaker dollar and improving risk expectations for a key chokepoint. October COMEX gold rose about 3.3% to a 7-week high, while September COMEX silver increased around 4.1% to a 1-month high.
The rally was linked to speculation about the potential reopening of the Strait of Hormuz. According to reporting cited in the article, the US, Iran and Oman were nearing an interim agreement to reopen the waterway. A reopening would increase expected oil supply and could ease inflation expectations, lowering the perceived odds of more aggressive monetary tightening.
Industrial demand signals also played a role. Silver’s move received carryover support from copper, which was reported to have hit a 2-month high. The copper advance was tied to falling LME inventory levels and reported increases in US copper imports. The article cited data showing more than 200,000 MT of copper arrived at US ports in July—described as the largest monthly volume in available data going back to 2014.
At the same time, the metals market also contends with positioning dynamics. The report noted that recent fund liquidation has been a headwind, including a drop in gold ETF long holdings to a 10-month low last Monday and a decline in silver ETF long holdings to a 1-year low on July 14 from a higher level earlier in the year.
Support for gold also came from central bank demand. The article cited data that China’s PBOC increased bullion reserves by 480,000 ounces in June to 75.44 million troy ounces, marking the twentieth consecutive month of purchases.
What to watch next
With FX and commodities moving in tandem, investors will likely monitor the next batch of US inflation and employment data for confirmation of whether the softer ADP and ISM signals translate into lower rate expectations. On the policy calendar, attention remains on the path toward the next Fed meeting in September, while for Europe and Japan markets will watch incoming price pressures that could shift assumptions ahead of upcoming ECB and BOJ decisions.
