The dollar index (DXY00) today is down by -0.14% but remains above Wednesday's 2.5-month low. Optimism that a peace deal between the US and Iran is imminent is curbing safe-haven demand for the dollar today. Also, today's -4% decline in crude oil prices eases inflation expectations and could prompt the Fed to pursue a dovish, dollar-negative monetary policy. In addition, today's rally in the S&P 500 to a new record high has dampened liquidity demand for the dollar.
Losses in the dollar are limited due to today's dollar-friendly news on weekly jobless claims, Q1 nonfarm productivity, and Q1 unit labor costs. Also, hawkish comments today from Boston Fed President Susan Collins and Cleveland Fed President Beth Hammack were supportive of the dollar when they said they favored keeping interest rates on hold.
The markets are awaiting further updates after the US presented a proposal to Iran that would gradually reopen the Strait of Hormuz and lift the US blockade on Iranian ports. Negotiations over Iran's nuclear program would come later in the process. Iran is expected to respond via Pakistan in the next few days.
US weekly initial unemployment claims rose +10,000 to 200,00, showing a stronger labor market than expectations of 205,000. Weekly continuing claims unexpectedly fell -10,000 to a 2.24-year low of 1.766 million, showing a stronger labor market than expectations of an increase to 1.800 million.
US Q1 nonfarm productivity rose +0.8%, stronger than expectations of +0.6%. Q1 unit labor costs rose by 2.3%, below expectations of 2.5%.
Boston Fed President Susan Collins said interest rates should stay at current "mildly restrictive" levels, but "if the inflation trajectory looked like it was significantly moving in the wrong direction," policymakers would "need to reassess what the appropriate policy would be."
Cleveland Fed President Beth Hammack said the FOMC's signal that the next rate move will be a cut is misleading, and her baseline is that interest rates will be on hold for a long period.
Swaps markets are discounting the odds at 7% for a 25 bp rate cut at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) is up by +0.18% today and is just below Wednesday's 2.5-week high. Today's weaker dollar is supportive of the euro. Also, better-than-expected Eurozone economic news today on Mar Retail sales and German Mar factory orders are bullish for the euro. In addition, today's -4% decline in crude oil prices is positive for the Eurozone economy and the euro, as Europe imports most of its energy.
Eurozone Mar retail sales fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m.
German Mar factory orders rose +5.0% m/m, stronger than expectations of +1.0% m/m.
Swaps are discounting a 73% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) today is down by -0.04%. The yen is slightly higher today amid the weaker dollar. The yen also has carryover support from Wednesday when Japanese authorities intervened in the forex market to support the yen. In addition, today's -4% fall in crude oil prices is positive for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs. Finally, lower T-note yields today are supportive of the yen. Gains in the yen are limited as today's +5% surge in the Nikkei Stock Index to a new all-time high curbed safe-haven demand for the yen.
According to a Bloomberg analysis of central bank accounts, Japanese authorities likely used around 4.68 trillion yen ($30 billion) to intervene in the currency market to support the yen on Wednesday.
The markets are discounting a +72% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
June COMEX gold (GCM26) today is up +61.90 (+1.32%), and July COMEX silver (SIN26) is up +4.552 (+5.89%).
Gold and silver prices are sharply higher today for a second day, with gold posting a 2-week high and silver posting a 2.5-week high. Today's weaker dollar is supportive of precious metals. Also, today's -4% decline in crude oil prices eases inflation expectations and could persuade the world's central banks to pursue easier monetary policies, a bullish factor for precious metals. In addition, lower global bond yields today are bullish for precious metals.
Today's rally in the S&P 500 to a new all-time high has curbed some safe-haven demand for precious metals. Also, hawkish comments today from Boston Fed President Susan Collins and Cleveland Fed President Beth Hammack were bearish for precious metals when they said they favored keeping interest rates on hold.
Precious metals also remain supported by uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty, which are boosting demand for precious metals as a store of value.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 4.5-month low on March 31 after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 8.75-month low on Tuesday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following today's news that bullion held in China's PBOC reserves rose by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has boosted its gold reserves.
