The dollar index (DXY00) Tuesday rose by +0.09%. The dollar Tuesday finished slightly higher on comments from Fed Governor Waller and Atlanta Fed President Bostic, who said they favor waiting for inflation to decline before cutting interest rates. Gains in the dollar were contained on Tuesday due to lower T-note yields.
Fed Governor Waller said he needs to see "several more" months of good inflation figures to begin interest rate cuts.
Atlanta Fed President Bostic reiterated his view that inflation will continue to decline slowly and that the Fed can likely begin cutting interest rates in the fourth quarter.
The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 25% for the following meeting on July 30-31.
EUR/USD (^EURUSD) Tuesday fell by -0.03%. The euro Tuesday posted modest losses on dollar strength. Offsetting Eurozone economic news Tuesday limited movement in the euro after Eurozone Q1 labor costs accelerated, a hawkish factor for ECB policy, while the German Apr PPI eased, a dovish factor for ECB policy. Central bank divergence limits the upside in the euro, with the ECB expected to cut interest rates next month while the Fed delays rate cuts.
Eurozone Q1 labor costs accelerated to +4.9% y/y from +3.4% y/y in Q4.
German Apr PPI eased to -3.3% y/y from -2.9% y/y in Mar, weaker than expectations of -3.1% y/y.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for its next meeting on June 6.
USD/JPY (^USDJPY) Tuesday fell by -0.08%. The yen on Tuesday recovered from early losses and moved slightly higher as a decline in T-note yields sparked short covering in the yen. Divergence in government bond yields is undercutting the yen’s interest rate differentials and is negative for the yen, with 10-year JGB yields well below those of other G-7 countries.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 29% for the June 14 meeting.
June gold (GCM4) Tuesday closed down -12.6 (-0.52%), and July silver (SIN24) closed down -0.348 (-1.07%). Precious metals prices settled moderately lower on Tuesday. A stronger dollar Tuesday weighed on metals prices. Also, hawkish comments from Fed Governor Waller and Atlanta Fed President Bostic were negative for gold when they said they favor waiting for inflation to decline before cutting interest rates.
Lower global bond yields on Tuesday were supportive of precious metals. Also, ongoing geopolitical risks in the Middle East have boosted safe-haven demand for gold. In addition, the buying of gold by central banks is supporting prices. According to the World Gold Council, global central banks added 290 tons of gold to their official holdings in Q1, the most for a quarter since data began in 2000.
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.
