The dollar index (DXY00) Tuesday rose by +0.31%. Hawkish comments Tuesday from Minneapolis Fed President Kashkari supported the dollar when he said it's likely the Fed will keep interest rates where they are "for an extended period of time." Also, weakness in the yen was positive for the dollar after a Japanese government official suggested the bar for additional Japanese government intervention in currency markets to support the yen may be higher than markets anticipate. Lower T-note yields on Tuesday limited gains in the dollar.
US Mar consumer credit increased by +$6.274 billion, weaker than expectations of +$15.000 billion.
Minneapolis Fed President Kashkari said that given recent inflation data, he questions whether Fed policy is restrictive enough to return price growth to the Fed's 2% target. He added that it's likely the Fed will keep interest rates where they are "for an extended period of time" until they are certain inflation is on track to their target.
The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 33% for the following meeting on July 30-31.
EUR/USD (^EURUSD) Tuesday fell by -0.15%. The euro Tuesday gave up an early advance and finished moderately lower. Dollar strength on Tuesday weighed on the euro. The euro was also under pressure after German Mar factory orders unexpectedly declined and after ECB Governing Council member de Cos said the ECB could cut interest rates in June if the inflation path holds. Based on some positive Eurozone economic news, the euro initially moved higher on Tuesday. Eurozone Mar retail sales rose more than expected, and German trade news for March was stronger than expected.
Eurozone Mar retail sales rose +0.8% m/m, stronger than expectations of +0.7% m/m and the largest increase in 1-1/2 years.
German Mar factory orders unexpectedly fell -0.4% m/m, weaker than expectations of +0.4% m/m.
German trade news was better than expected as Mar exports rose +0.9 %m/m, stronger than expectations of +0.3% m/m. Also, Mar imports unexpectedly rose +0.3% m/m, stronger than expectations of -1.0% m/m.
ECB Governing Council member de Cos said, "If these inflation prospects are maintained, from my point of view, it would be advisable for the ECB to begin reducing the current level of monetary restriction in June."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for its next meeting on June 6.
USD/JPY (^USDJPY) on Tuesday rose by +0.51%. The yen was under pressure Tuesday on comments from Masato Kanda, Japan’s top currency official, who said the government doesn’t need to intervene in the forex market if market movements are orderly, suggesting Japan will tolerate a weaker yen. Lower T-note yields Tuesday were positive for the yen. Also, Tuesday’s comments from BOJ Governor Ueda supported the yen when he said, "The BOJ will closely monitor the recent yen weakness in conducting policy."
The Japan Apr Jibun Bank services PMI was revised downward by -0.3 to 54.3 from the previously reported 54.6.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 23% for the June 14 meeting.
June gold (GCM4) Tuesday closed down -7.0 (-0.30%), and July silver (SIN24) closed down -0.070 (-0.25%). Precious metals Tuesday closed slightly lower. A stronger dollar Tuesday weighed on metals prices. Also, hawkish comments from Minneapolis Fed President Kashkari undercut precious metals when he said it's likely the Fed will keep interest rates where they are "for an extended period of time." Fund liquidation is negative for gold prices after long gold holdings in ETFs fell to a 4-1/2 year low Monday. A bearish factor for silver was the unexpected decline in German Mar factory orders, a sign of weak industrial metals demand.
Lower global bond yields Tuesday limited losses in precious metals. Gold also found support after China’s central bank bought 60,000 troy ounces of gold in April, the eighteenth consecutive month it has boosted its gold reserves. In addition, dovish comments from ECB Governing Council member de Cos supported demand for gold as a store of value when he said the ECB could cut interest rates in June if the inflation path holds.
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.
