The dollar index (DXY00) on Monday rallied to a 4-1/2 month high and finished up +0.48%. The dollar initially moved higher Monday on last Friday’s stronger-than-expected US Feb personal spending report. Also, comments last Friday from Fed Chair Powell supported the dollar when he said the Fed is in “no hurry” to cut interest rates. The dollar extended its gains on Monday’s stronger-than-expected Mar ISM manufacturing index, which was hawkish for Fed policy.
The US Mar ISM manufacturing index rose +2.5 to 50.3, stronger than expectations of 48.3 and the highest level in 1-1/2 years. The Mar ISM prices paid sub-index rose +3.3 to a 1-1/2 year high of 55.8, stronger than expectations of 53.0.
US Feb construction spending unexpectedly fell -0.3% m/m versus expectations of a +0.7% m/m increase.
Last Friday’s US Feb personal spending report rose +0.8% m/m, stronger than expectations of +0.5% m/m and the largest increase in 13 months. Feb personal income rose +0.3% m/m, weaker than expectations of +0.4% m/m.
Last Friday’s US Feb PCE core deflator report, the Fed's preferred inflation gauge, eased to +2.8% y/y from +2.9% y/y in Jan, right on expectations and the smallest increase in nearly three years.
Last Friday, Fed Chair Powell said, "The fact that the US economy is growing at such a solid pace, the fact that the labor market is still, very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates."
The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 60% for the following meeting on June 11-12.
EUR/USD (^EURUSD) on Monday dropped to a 1-1/2 month low and finished down by -0.44%. The strength in the dollar Monday weighed on the euro. Trading activity in the euro on Monday was below average since the markets in the Eurozone were closed for the Easter Monday holiday.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 10% for its next meeting on April 11 and 97% for the following meeting on June 6.
USD/JPY (^USDJPY) on Monday rose by +0.20%. The yen posted moderate losses on Monday and was under pressure due to higher T-note yields. However, the stronger-than-expected Q1 Tankan large manufacturing business conditions index limited losses in the yen. The yen also garnered support on speculation that Japanese authorities may be close to intervening in currency markets to support the yen after Japanese Finance Minister Suzuki reiterated Monday that the Japanese government will take appropriate measures against any excessive currency moves.
The Japan Q1 Tankan large manufacturing business conditions index fell to 11 from 12 in Q4, stronger than expectations of 10.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 154 for the following meeting on June 14.
June gold (GCM4) on Monday closed up +18.7 (+0.84%), and May silver (SIK24) closed up +0.157 (+0.63%). Precious metals posted moderate gains on Monday, with June gold at a contract high and nearest-futures April gold climbing to an all-time high. Also, silver prices rose to a 1-week high. Precious metals moved higher Monday on last Friday’s dovish US Feb core PCE deflator, the Fed’s preferred inflation gauge, which showed the smallest increase in nearly three years. Silver garnered support after the US Mar ISM manufacturing index expanded by the most in 1-1/2 years, and the Caixin Mar manufacturing PMI expanded by the most in 13 months, positive factors for industrial metals demand.
Precious metals fell back from their best levels Monday after the dollar index rallied to a 4-1/2 month high. Also, higher T-note yields were negative for gold prices after the 10-year T-note yield Monday climbed to a 1-1/2 week high.
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.
