Dollar Falls on Dovish US Economic News and Lower Bond Yields

The dollar index (DXY00) today fell back from a 2-week high and is down -0.33%.  Today’s dovish US economic reports knocked T-note yields lower and are weighing on the dollar.  Also, dovish comments Wednesday evening from Atlanta Fed President Bostic undercut the dollar when he said he’s looking for the Fed to begin cutting interest rates in Q4.

US weekly initial unemployment claims rose +3,000 to 219,000, showing a slightly weaker labor market than expectations of 217,000.

US Q1 GDP was revised downward to +1.3% (q/q annualized) from +1.6%, right on expectations.  The Q1 core PCE price index was unexpectedly revised lower to +3.6% (q/q annualized), weaker than expectations of no change at +3.7%.

US Apr pending home sales fell -7.7% m/m, weaker than expectations of -1.0% m/m and the biggest decline in more than three years.

Wednesday evening, Atlanta Fed President Bostic said many of the different measures of inflation he looks at on his dashboard “are moving back into the target range,” and he’s “looking at the end of the year, the fourth quarter, as the time where we might actually think about and be prepared to reduce interest rates.”

The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 12% for the following meeting on July 30-31.

EUR/USD (^EURUSD) today is up by +0.29%.  The euro today recovered from a 2-week low and is mildly higher.  The euro today saw support from hawkish European economic reports. 

The Eurozone Apr unemployment rate unexpectedly fell -0.1 to a record low of 6.4%, showing a stronger labor market than expectations of no change at 6.5%.   

Spain’s May CPI (EU harmonized) rose +3.8% y/y, stronger than expectations of +3.7% y/y, and the largest increase in 13 months.

Eurozone May economic confidence rose +0.4 to 96.0, slightly weaker than expectations of 96.1.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for its next meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.56%.  The yen today is climbing against the dollar on weaker T-note yields.  Also, short covering pushed the yen higher today due to the concern that the yen is getting near the level that Japanese authorities last intervened in the forex market to support the yen.  In addition, today’s fall in the Nikkei Stock Index to a 1-month low sparked some safe-haven demand for the yen. 

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 29% for the June 14 meeting.

June gold (GCM4) today is up +4.7 (+0.20%), and July silver (SIN24) is down -0.633 (-1.96%).  Precious today are mixed.  Gold prices recovered from a 3-week low today and moved higher on a weaker dollar.  Also, a decline in global bond yields today is bullish for precious metals.  In addition, Wednesday evening’s dovish comments from Atlanta Fed President Bostic were supportive of precious metals as a store of value when he said he’s looking at Q4 for the Fed to begin cutting interest rates.  Finally, precious metals prices are seeing safe-haven demand due to heightened tensions in the Middle East. 

Gains in precious metals are limited after recent Fed comments and stronger-than-expected US economic news bolstered the outlook for the Fed to keep interest rates higher for longer.  Also, demand for gold as an inflation hedge receded after today’s news showed the US Q1 core PCE price index was unexpectedly revised slightly lower.  Silver prices are also under pressure today after US Apr pending home sales fell by the most in over three years, a negative factor for industrial metals demand.

More Forex News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.