The dollar index (DXY00) on Friday fell by -0.01%. The dollar was under pressure Friday on dovish comments from Atlanta Fed President Bostic, who said if the outlook unfolds as he expects, “it will be appropriate to cut interest rates this year.“ Friday’s weaker-than-expected report on US Apr leading indicators was also bearish for the dollar.
Losses in the dollar were limited Friday due to higher T-note yield and hawkish comments from Fed Governor Bowman, who said she expects inflation to remain elevated “for some time.”
US Apr leading indicators fell -0.6% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 6 months.
Fed Governor Bowman said, "With average core CPI this year through April running at an annualized rate of 4.3%, well above average inflation in the second half of last year, I expect inflation to remain elevated for some time."
Thursday evening, Atlanta Fed President Bostic said if the outlook unfolds as he expects, referring to slowly moderating inflation and continued economic momentum, "then it could be appropriate for us to reduce rates toward the end of the year."
The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 32% for the following meeting on July 30-31.
EUR/USD (^EURUSD) on Friday rose by +0.08%. The euro on Friday recovered from early losses and posted modest gains. Hawkish comments on Friday from ECB Executive Board member Schnabel, who pushed German bund yields higher and supported the euro when she said she did not favor back-to-back interest rate cuts by the ECB in June and July. On Friday, the euro initially moved lower on central bank divergence weighed as the ECB is expected to cut interest rates next month while the Fed continues to delay rate cuts.
ECB Executive Board member Schnabel warned against back-to-back interest-rate cuts in June and July and said, "Based on current data, a rate cut in July does not seem warranted."
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) on Friday rose by +0.16%. The yen was under pressure Friday from higher T-note yields. The yen also retreated after the BOJ left its bond purchase amounts unchanged on Friday, following a surprise cut in its monthly bond buying on Monday.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 24% for the June 14 meeting.
June gold (GCM4) Friday closed up +31.9 (+1.34%), and July silver (SIN24) closed up +1.383 (+4.63%). Precious metals prices rallied Friday, with gold climbing to a 5-week high and July silver posting a contract high. Also, nearest-future May silver soared to an 11-year high.
Dovish comments Thursday evening from Atlanta Fed President Bostic gave precious metals a boost when he said it may be appropriate to cut interest rates toward the end of the year should the economy evolve as he anticipates. Gains in precious metals accelerated Friday on increased demand as an inflation hedge when Fed Governor Bowman said she expects inflation “to remain elevated for some time." Silver has support from the outlook for increased industrial demand. The World Silver Survey said industrial consumption of silver hit an all-time high in 2023 and is expected to expand another 9% this year, driven by clean-energy applications such as solar panels.
On the negative side for precious metals Friday was higher global bond yields. Also, hawkish comments Friday from ECB Executive Board member Schnabel undercut precious metals when she said back-to-back interest rate cuts by the ECB in June and July do not look warranted.
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.
