The dollar index (DXY00) this morning is up by +0.10% on support from higher T-note yields. Today’s stock weakness is also boosting some liquidity demand for the dollar. The dollar fell back from its best levels after US Mar wholesale trade sales unexpectedly declined.
US Mar wholesale trade sales unexpectedly fell -1.3% m/m, weaker than expectations of a +0.8% m/m increase.
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) today is down by -0.04%. The euro is slightly lower today and is being pressured by a stronger dollar. Also, expectations for the ECB to begin cutting interest rates next month are bearish for the euro. Losses in the euro are limited by the better-than-expected German industrial production report.
German Mar industrial production fell -0.4% m/m, a smaller decline than expectations of -0.7% m/m.
ECB Governing Council member Wunsch said with "no sign of de-anchoring" of inflation expectations in the Eurozone in the longer term, "the costs of remaining tight for too long seem to outweigh those of a premature loosening."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 94% for its next meeting on June 6.
USD/JPY (^USDJPY) is up by +0.54%. The yen is moderately lower today and remains under pressure on Tuesday’s comments from Masato Kanda, Japan’s top currency official, who said the government doesn’t need to intervene in the forex market if market movements are orderly, suggesting Japan will tolerate a weaker yen. Higher T-note yields today are positive for the yen versus the dollar. Also, today’s hawkish comments from BOJ Governor Ueda supported the yen when he said, "a monetary policy response might be needed" if the yen continues to weaken.
BOJ Governor Ueda said, "Foreign exchange rates make a significant impact on the economy and inflation. Depending on those moves, a monetary policy response might be needed." He added that an "abrupt, one-sided weak yen is negative for the economy, and it would be appropriate for the BOJ to raise interest rates at a faster pace if upside price risks grow."
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) this morning is down -6.7 (-0.29%), and July silver (SIN24) is down -0.074 (-0.27%). Precious metals prices today are mildly lower on a stronger dollar. Also, higher global bond yields are bearish for precious metals. In addition, hawkish comments from BOJ Governor Ueda undercut precious metals when he said it would be appropriate for the BOJ to raise interest rates at a faster pace if upside price risks grow.
Ongoing Middle East tensions continue to support safe-haven demand for precious metals. Also, today’s stock weakness is boosting safe-haven demand for precious metals. Today’s better-than-expected report on German Mar industrial production is bullish for industrial metals demand and silver prices.
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.
