The dollar index (DXY00) on Wednesday fell by -0.69%. The dollar was under pressure Wednesday from lower T-note yield and an easing of inflation pressures that may prompt the Fed to end its rate-hike campaign. Also, dovish Fed comments Wednesday from San Francisco Fed President Daly and Richmond Fed President Barkin weighed on the dollar. The dollar fell to its lows Wednesday afternoon following the release of the dovish minutes from the Mar 21-22 FOMC meeting.
U.S. Mar CPI rose +0.1% m/m and +5.0% y/y, a smaller increase than expectations of +0.2% m/m and +5.1% y/y. However, Mar CPI ex-food and energy rose to +5.6% y/y from +5.5% y/y in Feb, right on expectations.
San Francisco Fed President Daly said although inflation still has a ways to go to come down to the Fed's 2% goal, "the economy may be able to slow down enough on its own to accomplish that, even without further policy adjustments."
Richmond Fed President Barkin said, "There is still more to do to get core inflation down to where we'd like it to be."
The minutes of the Mar 21-22 FOMC meeting showed policymakers scaled back expectations for rate hikes this year as "many participants noted that the likely effects of recent banking-sector developments on economic activity and inflation had led them to lower their assessments of the federal funds rate target range that would be sufficiently restrictive."
The FOMC minutes also stated that Fed officials saw risks to economic activity as weighted to the downside and projected a "mild recession" starting in 2023 "given their assessment of the potential economic effects of the recent banking sector developments."
EUR/USD (^EURUSD) on Wednesday rose by +0.71%. The euro Wednesday rallied to a 2-1/4 month high against the dollar. The weaker-than-expected U.S. Mar CPI report undercut the dollar to the benefit of the euro. Gains in EUR/USD accelerated on hawkish comments from ECB Vice President Guindos, who said the Eurozone is likely to report positive growth in Q1 and that core inflation pressures in the Eurozone are "stickier" than anticipated.
USD/JPY (^USDJPY) on Wednesday fell by -0.41%. The yen Wednesday recovered from a 3-1/2 week low and posted moderate gains. Lower T-note yields Wednesday were bullish for the yen. Also, better-than-expected Japanese economic news Wednesday on Mar producer prices and Feb core machine orders supported the yen.
Japan’s Mar PPI eased to +7.2% y/y from +8.3% y/y in Feb, the slowest pace of increase in 1-1/2 years.
Japan’s Feb core machine orders fell -4.5% m/m, a smaller decline than expectations of -6.3% m/m.
June gold (GCM3) on Wednesday closed up +5.90 (+0.29%), and May silver (SIK23) closed up +0.272 (+1.08%). Precious metals Wednesday settled higher, with silver prices jumping to an 11-3/34 month high. Dollar weakness Wednesday was bullish for metals prices. Also, lower T-note yields Wednesday were supportive of precious metals. In addition, gold is supported by strong demand from fund buying as gold holdings in exchange-traded funds (ETFs) rose to a 2-1/2 month high Tuesday. Metals prices fell back from their best levels after U.S. Mar core consumer prices accelerated, which may keep the Fed from ending its rake-hike campaign.
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.
