The dollar index (DXY00) this morning is up by +0.23% at a 2-1/2 week high. Weakness in the yen is positive for the dollar as the yen tumbled to a new 4-month low today. Short covering is also boosting the dollar ahead of today’s FOMC meeting results and comments from Fed Chair Powell. A decline in T-note yields is limiting the dollar’s advance.
US weekly MBA mortgage applications fell -1.6% in the week ended March 15. The purchase mortgage sub-index fell -1.2%, and the refinancing sub-index fell -2.5%. The average 30-year fixed rate mortgage rose +13 bp to 6.97% from 6.84% in the prior week.
The markets are discounting the chances for a -25 bp rate cut at 1% at the conclusion of today’s FOMC meeting, at 11% for the following meeting on April 30-May 1, and 67% for the meeting after that on June 11-12.
EUR/USD (^EURUSD) this morning is down by -0.17% and is just above Tuesday’s 2-1/2 week low. Today, the dollar’s strength is in pressuring the euro. The euro also fell back as today’s report on German February producer prices was weaker than expected, a dovish factor for ECB policy. EUR/USD maintained moderate losses even after ECB President Lagarde said the ECB couldn’t commit to additional rate cuts after a likely rate cut in June.
German Feb PPI fell -0.4% m/m and -4.1% y/y, weaker than expectations of -0.1% m/m and -3.8% y/y.
ECB President Lagarde said the ECB can't commit to further reductions in borrowing costs after a likely first rate cut in June, and "even after the first rate cut, we cannot pre-commit to a particular rate path."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on April 11 and 81% for the following meeting on June 6.
USD/JPY (^USDJPY) this morning is up by +0.51%. The yen today extended Tuesday’s sharp losses to a new 4-month low against the dollar. The yen is under pressure on negative carryover from Tuesday when BOJ Governor Ueda said BOJ policy would remain accommodative even after it ended its negative interest rate campaign. Today's trading activity in the yen may be muted with markets in Japan closed for the Vernal Equinox Day holiday.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 6% for the April 26 meeting and 22% for the following meeting on June 14.
April gold (GCJ4) this morning is up +7.3 (+0.34%), and May silver (SIK24) is up +0.090 (+0.36%). Precious metals recovered from early losses this morning and are moderately higher. Lower global bond yields today are supportive of precious metals. Also, today’s weaker-than-expected report on German Feb producer prices is dovish for ECB policy and supportive for gold. In addition, the ongoing geopolitical risks in the Middle East support safe-haven demand for precious metals. Finally, short covering and position squaring ahead of today’s FOMC meeting results are lifting precious metals prices.
On the negative side, strength in the dollar is bearish for metals prices as the dollar index today rose to a 2-1/2 week high. Also, hawkish comments today from ECB President Lagarde weighed on gold when she said the ECB couldn’t commit to further interest rate cuts after its June meeting.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
