The dollar index (DXY00) this morning is down by -0.06% but is holding above last Friday’s 3-week low. The dollar has some negative carryover from last Friday’s weaker-than-expected US payroll and ISM services reports, which bolstered expectations that the Fed will cut interest rates this year. Today’s rally in stocks has also reduced liquidity demand for the dollar.
The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 40% for the following meeting on July 30-31.
EUR/USD (^EURUSD) today is up +0.21% and is modestly below last Friday’s 3-week high. Some positive economic news supported the euro after the Eurozone May Sentix investor confidence index rose more than expected to a 2-1/4 year high, and the Eurozone Apr S&P composite PMI was revised upward to an 11-month high. Limiting gains in EUR/USD are dovish comments from ECB Chief Economist Lane and ECB Governing Council member Simkus, who both said they expect the ECB to start cutting interest rates in June.
The Eurozone May Sentix investor confidence index rose +2.3 to a 2-1/4 year high of -3.6, stronger than expectations of -5.0.
Eurozone Mar PPI fell -7.8% y/y, weaker than expectations of -7.7% y/y.
The Eurozone Apr S&P composite PMI was revised upward by +0.3 to 51.7 from the previously reported 51.4, the fastest pace of expansion in 11 months.
ECB Chief Economist Lane said recent Eurozone data have made him more certain that inflation is returning to the ECB's 2% goal, raising the likelihood of a first interest rate cut in June.
ECB Governing Council member Simkus said he expects the ECB to cut interest rates three times this year, starting with a planned move in June.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for its next meeting on June 6.
USD/JPY (^USDJPY) today is up by +0.45%. The yen is moderately lower today due to central bank divergence. Japanese government bond yields are well below the bond yields of other G-7 countries, which is bearish for the yen. However, the yen has underlying support on concern that Japanese authorities may step into the currency market again to support the yen after intervening in the forex market twice last week in support of the yen. Trading activity in the yen is subdued today with markets in Japan closed for the Children’s Day holiday.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 22% for the June 14 meeting.
June gold (GCM4) this morning is up +24.1 (+1.04%), and July silver (SIN24) is up +0.855 (+3.20%). Precious metals today are posting moderate gains. A weaker dollar today is bullish for metals. Also, lower global bond yields are supportive of precious metals. In addition, precious metals are climbing after last Friday’s weaker-than-expected US payroll and ISM services reports bolstered optimism that the Fed will cut interest rates this year.
Bearish factors for precious metals include today’s stock rally, which curbed safe-haven demand for precious metals. Also, fund liquidation is negative for gold prices after long gold holdings in ETFs fell to a 4-1/2 year low last Friday.
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.
