The dollar index (DXY00) Tuesday rose by +0.04% and posted a 4-week high. Persistent weakness in the euro benefits the dollar as political upheaval in France knocked the euro down to a 5-week low Tuesday. Also, the dollar is supported by expectations the Fed will leave policy unchanged at the conclusion of the 2-day FOMC meeting on Wednesday. The dollar fell back from its best levels Tuesday after a decline in T-note yields supported a recovery in stock prices.
The markets are discounting the chances for a -25 bp rate cut at 1% for the June 11-12 FOMC meeting, 8% for the following meeting on July 30-31, and 49% for the meeting after that on Sep 17-18.
EUR/USD (^EURUSD) Tuesday fell by -0.16% to a 5-week low. The euro remains under pressure due to political uncertainty in France after French President Macron on Sunday called for early parliamentary elections later this month in an attempt to stop the advance of his far-right rivals. Losses in EUR/USD were limited after ECB Governing Council member Rehn said the ECB isn't pre-committing to any path for interest rates.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 8% for the July 18 meeting and 49% for the September 12 meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.05%. The yen on Tuesday recovered from a 1-week low and finished slightly higher as a decline in T-note yields sparked short covering in the yen. The yen Tuesday was initially under pressure from divergence in bond yields, with the government bond yields of other G-7 countries well above Japan’s bond yields. The yen also garnered support Tuesday on strong economic news after Japan's May machine tool orders rose +4.2% y/y, the largest increase in 20 months.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 7% for the June 14 meeting and at 65% for the July 31 meeting.
August gold (GCQ4) Tuesday closed down -0.40 (-0.02%), and July silver (SIN24) closed down -0.643 (-2.15%). Precious metals closed lower on Tuesday, with silver falling to a 3-1/2 week low. Tuesday’s rally in the dollar index to a 4-week high was bearish for metals prices. Also, silver was weighed down by negative carryover from a slide in copper prices Tuesday on signs of tepid copper demand in China after copper inventories on the Shanghai Futures Exchange climbed to a 4-year high, a sign of weak industrial metals demand.
Losses in precious metals Tuesday were limited by a decline in global bond yields. Also, political upheaval in France has boosted safe-haven demand for gold after French President Macron called for early parliamentary elections later this month.
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.
