Dollar Falls Back on Strength in the Euro

The dollar index (DXY00) this morning is down by -0.27%.  The dollar today fell back from a 4-1/2 month high and is moderately lower.  Today’s strength in the euro sparked long liquidation in the dollar.  The dollar is seeing underlying support from today’s better-than-expected US factory orders and job openings reports.  Also, higher bond yields are bullish for the dollar after the 10-year T-note yield today rose to a 4-month high.   

US Feb JOLTS job openings unexpectedly rose +8,000 to 8.756 million, showing a stronger labor market than expectations of a decline to 8.730 million.

US Feb factory orders rose +1.4% m/m, stronger than expectations of +1.0% m/m.

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 61% for the following meeting on June 11-12.

EUR/USD (^EURUSD) this morning is up by +0.33% after a rebound from a 1-1/2 month low.  An upward revision to the Eurozone Mar S&P manufacturing PMI sparked some short covering in the euro.  Gains in the euro accelerated after the dollar retreated from a 4-month high.  The upside in the euro was limited by today’s weaker-than-expected German Mar CPI report, a dovish factor for ECB policy.

The Eurozone Mar S&P manufacturing PMI was revised upward by +0.4 to 46.1 from the previously reported 45.7.

ECB Feb 1-year inflation expectations eased to 3.1% from 3.3% in Jan, the lowest in 2 years.  Feb 3-year inflation expectations were unchanged at 2.5% from Jan, stronger than expectations of a decline to 2.4%.

German Mar CPI (EU harmonized) rose +0.6% m/m and +2.3% y/y, weaker than expectations of +0.7% m/m and +2.4% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 14% for its next meeting on April 11 and have fully priced in (103%) that rate cut for the following meeting on June 6.

USD/JPY (^USDJPY) this morning is down by -0.11%.  The yen today recovered from early losses and is slightly higher on speculation that Japanese authorities may be close to intervening in currency markets to support the yen after Japanese Finance Minister Suzuki reiterated Monday that the Japanese government will take appropriate measures against any excessive currency moves.  The yen today initially moved lower due to strength in T-note yields as the 10-year T-note yield climbed to a 4-month high.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 14% for the following meeting on June 14.

June gold (GCM4) this morning is up +36.0 (+1.60%), and May silver (SIK24) is up +0.632 (+2.52%).  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, silver prices climbed to a 1-1/2 week high.  Geopolitical risks are boosting precious metals prices after Israel last Friday launched an airstrike on Iranian targets in Syria, and Iran threatened retaliation. Weakness in stocks today has also boosted safe-haven demand for precious metals.   In addition, an increase in inflation expectations is boosting demand for gold as an inflation hedge after the US 10-year breakeven inflation rate today rose to a 1-1/2 week high.  Silver garnered carryover support from today’s rally in copper prices to a 1-1/2 week high.  Higher global bond yields today are a negative factor for precious metals.

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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.

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