The dollar index (DXY00) this morning is down by -0.30%. The dollar retreated today after the US Mar ISM services index unexpectedly declined and after the Mar ISM services price paid sub-index fell to a 4-year low, dovish factors for Fed policy. On the positive side was the stronger-than-expected US Mar ADP employment report, a hawkish factor for Fed policy. Also, Atlanta Fed President Bostic said he favored waiting until Q4 for the Fed to begin cutting interest rates.
The US Mar ISM services index unexpectedly fell -1.2 to 51.4, weaker than expectations of an increase to 52.8. The Mar ISM services price paid sub-index fell -5.2 to a 4-year low of 53.4, weaker than expectations of 58.4.
The US Mar ADP employment change rose +184,000, stronger than expectations of +150,000. Also, Feb ADP was revised upward to +155,000 from the previously reported +140,000.
Atlanta Fed President Bostic said due to the bumpy nature of inflation progress, "it will likely be appropriate for us to lower interest rates at the end of this year, in the fourth quarter."
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) this morning is up by +0.36%. The euro today is moderately higher, garnering support from a weak dollar. Also, today’s report showing the Eurozone Feb unemployment rate unchanged at a record low was bullish for the euro. Gains in EUR/USD are limited after Eurozone Mar CPI rose less than expected, a dovish factor for ECB policy.
The Eurozone Feb unemployment rate was unchanged at a record low of 6.5%, higher than expectations of a decline to 6.4%.
Eurozone Mar CPI eased to 2.4% y/y from 2.6% y/y in Feb, better than expectations of 2.5% y/y. Mar core CPI eased to 2.9% y/y from 3.1% y/y in Feb, better than expectations of 3.0% y/y and the smallest increase in 2 years.
ECB Governing Council member Holzmann said, "An ECB rate cut in April is not on my radar. In June, if the data allows it, a decision will be made."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 9% for its next meeting on April 11 and 98% for the following meeting on June 6.
USD/JPY (^USDJPY) today is up by +0.17%. The yen today fell to a 1-week low against the dollar, pressured by rising T-note yields. Also, a downward revision today to the Japan Mar Jibun Bank services PMI was negative for the yen. Losses in the yen are contained by speculation that Japanese authorities may be close to intervening in currency markets to support the yen as several government members over the past week reiterated that the Japanese government will take appropriate measures against any excessive currency moves.
The Japan Mar Jibun Bank services PMI was revised downward by -0.8 to 54.1 from the previously reported 54.9.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1% for the April 26 meeting and 4% for the following meeting on June 14.
June gold (GCM4) this morning is up +15.1 (+0.66%), and May silver (SIK24) is up +0.882 (+3.40%). Precious metals today are moderately higher, with June gold posting a contract high and nearest-futures April gold climbing to an all-time high. Also, May silver rose to a contract high, and nearest-futures April silver climbed to a 2-year high.
A weaker dollar today is bullish for metals. Also, increased inflation expectations boosted demand for gold as an inflation hedge after the US 10-year breakeven inflation expectations rate rose to a 4-3/4 month high. In addition, geopolitical risks are boosting safe-haven demand for precious metals after Iran threatened retaliation against Israel for launching airstrikes on Iranian military officials in Syria last Friday. Precious metals also have carryover support from Tuesday when San Francisco Fed President Daly and Cleveland Fed President Mester expressed their support for three Fed rate hikes this year.
On the negative side, higher T-note yields today are bearish for precious metals. Also, today’s stronger-than-expected US Mar ADP employment report is hawkish for Fed policy. In addition, long liquidation and position squaring are undercutting precious metals ahead of a speech from Fed Chair Powell later this morning.
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.
