The dollar index (DXY00) this morning posted a 1-1/2 week high and is slightly higher. Strength in T-note yields today is supporting the dollar as the 10-year T-note yield climbed to a 3-week high. Also, today’s US economic news supported the dollar after the NAHB housing market index unexpectedly rose to an 8-month high. Gains in the dollar are limited as a sharp rally in stocks today is curbing liquidity demand for the dollar.
The US Mar NAHB housing market index unexpectedly rose +3 to an 8-month high of 51, stronger than expectations of no change at 48.
The markets are discounting the chances for a -25 bp rate cut at the Tue/Wed FOMC meeting at 1%, at 9% for the following meeting on April 30-May 1, and 61% for the meeting after that on June 11-12.
EUR/USD (^EURUSD) this morning is up by +0.03%. Today's strength in German bund yields is boosting the euro after the 10-year German bund yields rose to a 2-week high. The euro is being undercut after ECB Governing Council member de Cos said the ECB will probably start cutting interest rates in June.
ECB Governing Council member de Cos said, "The announcement last week that we have completed our goal of getting inflation to 2% is compatible with a cut in interest rates soon, and that could probably happen in June."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on April 11 and 81% for the following meeting on June 6.
USD/JPY (^USDJPY) this morning is up by +0.11%. The yen today fell to a 1-week low against the dollar on strength in T-note yields. Also, weaker-than-expected Japanese economic news is bearish for the yen after June core machine orders fell more than expected. Losses in the yen are contained by short covering ahead of Tuesday’s BOJ meeting, which could surprise the markets if the BOJ decides to exit its negative interest rate policy since the swap markets are discounting that possibility at only 47%.
Japan Jan core machine orders fell -1.7% m/m, weaker than expectations of -0.7% m/m.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 47% for Tuesday’s meeting and 79% for the following meeting on April 26.
April gold (GCJ4) this morning is up +2.4 (+0.11%), and May silver (SIK24) is up +0.029 (+0.11%). Precious metals today are mildly higher. Short-covering ahead of the Tue/Wed FOMC meeting is boosting precious metals. Also, demand for gold as an inflation hedge rose today after the 10-year breakeven inflation rate rose to a 1-1/2 week high. Silver garnered support on today’s global economic news that showed China Feb industrial production rose more than expected, and the US Mar NAHB housing market index unexpectedly rose, supportive factors for industrial metals demand. In addition, precious metals have underlying support from Middle East geopolitical tensions.
On the negative side, today’s rally in the dollar index to a 1-1/2 week high is bearish for metals. Also, higher T-note yields today are negative for precious metals. In addition, today’s stock rally has curbed safe-haven demand for precious metals.
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.
