The dollar index (DXY00) on Monday fell by -0.06%. The dollar was under pressure Monday from lower T-note yields, which weakened the dollar’s interest rate differentials. The dollar was also undercut by uncertainty ahead of this week’s US inflation reports. The dollar recovered from its worst levels after the NY Fed’s Apr 1-year inflation expectations rose to a 5-month high, a hawkish factor for Fed policy.
Monday's hawkish comments from Fed Vice Chair Jefferson supported the dollar when he said, “In light of the attenuation in progress, in terms of getting inflation down to our target, it is appropriate that we maintain the policy rate in restrictive territory."
The New York Fed Apr 1-year inflation expectations rose 0.26 percentage points to a 5-month high of 3.26% from 3.00% in March.
The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 30% for the following meeting on July 30-31.
EUR/USD (^EURUSD) on Monday rose to a 1-week high and finished up +0.15%. The euro found support Monday from a weaker dollar. The euro also garnered support Monday from a Bloomberg survey of analysts that raised their Eurozone 2024 GDP forecast to +0.7% from +0.5% last month.
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) Monday rose by +0.28%. The yen fell to a 1-week low against the dollar Monday and remains under pressure on speculation that Japanese authorities won’t intervene again in the forex market anytime soon to support the yen after Masato Kanda, Japan’s top currency official, said last Tuesday that the government doesn’t need to intervene in the forex market if market movements are orderly.
The yen found support Monday from a decline in T-note yields, which sparked some short covering in the yen. The yen also found support after the 10-year JGB bond yield rose to a 6-month high of 0.951% when the BOJ reduced the amount of its monthly bond purchases.
The BOJ on Monday purchased 425 billion yen ($2.7 billion) of 5-to-10-year debt, compared with 475.5 billion yen it bought last month, the first reduction in its bond buying in 6 months.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 35% for the June 14 meeting.
June gold (GCM4) Monday closed down -32.0 (-1.35%), and July silver (SIN24) closed down -0.063 (-0.22%). Precious metals prices on Monday settled lower. Hawkish comments Monday from Fed Vice Chair Jefferson weighed on precious metals prices when he said it is appropriate for the Fed to maintain interest rates in a restrictive range. Gold prices were also weighed down after the BOJ cut its monthly bond purchases for the first time in six months. Fund liquidation of gold holdings is negative for gold after long gold holdings in ETFs fell to a 4-1/2 year low last Friday.
Underlying bullish factors for metals include a weaker dollar, lower global bond yields, and safe-haven support from ongoing Middle East tensions. Silver has carryover support from Monday’s +2% rally in copper prices to a 2-year high after China said it would start selling 1 trillion yuan ($138 billion) of special bonds to fund infrastructure spending, which should boost its industrial metals demand.
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.
