Dollar Gains on Weakness in Most G-10 Currencies

The dollar index (DXY00) this morning rose to a 5-week high and is up by +0.20%.  The dollar today is garnering strength from a fall in EUR/USD to a 3-week low and a decline in GBP/USD to a 5-week low.  Also, the Chinese yuan tumbled to a 4-month low against the dollar today after Chinese authorities set a weaker-than-expected daily fixing, fueling speculation they would tolerate further losses in the currency.  Weakness in stocks today has also spurred some liquidity demand for the dollar. 

The markets are discounting the chances for a -25 bp rate cut at 17% for the next FOMC meeting on April 30-May 1 and 81% for the following meeting on June 11-12.

EUR/USD (^EURUSD) this morning fell to a 3-week low and is down by -0.31%.  Dollar strength is undercutting the euro today.  Also, dovish comments from ECB Governing Council member and Bundesbank President Nagel weighed on the euro when he said the probability is increasing that there will be a first interest rate cut by the ECB “before the summer break” in August.  The euro saw underlying support from today’s news that the German Mar IFO business climate index rose to a 9-month high.

The German Jan import price index was unchanged m/m and fell -5.9% y/y, stronger than expectations of -0.4% m/m and -7.5% y/y.

The German Mar IFO business climate survey rose +2.1 to a 9-month high of 87.8, stronger than expectations of 86.0.

ECB Governing Council member and Bundesbank President Nagel said the probability is increasing that there will be a first interest rate cut by the ECB “before the summer break” in August, but investors shouldn’t draw the conclusion that the same will happen at every subsequent meeting.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on April 11 and 90% for the following meeting on June 6.

USD/JPY (^USDJPY) this morning is down by -0.26%.  The yen today recovered from a 4-1/4 month low against the dollar and is moderately high.  Short covering in the yen emerged today on speculation Japan could soon intervene in the forex market in support of the yen on comments from Japanese Finance Minister Suzuki, who said the Japanese government will continue to monitor developments in currency markets with “a high sense of urgency.”  A decline in T-note yields today is also supportive of the yen. 

The Japan Feb national CPI rose +2.8% y/y, weaker than expectations of +2.9% y/y.  The Feb national CPI ex-fresh food and energy rose +3.2% y/y, weaker than expectations of +3.3% y/y and the smallest increase in 13 months.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 6% for the April 26 meeting and 50% for the following meeting on June 14.

April gold (GCJ4) this morning is down -9.12 (-0.42%), and May silver (SIK24) is down -0.082 (-0.33%).  Precious metals this morning are moderately lower, with silver falling to a 1-week low.  Today’s rally in the dollar index to a 5-week high is undercutting metals prices. Silver prices are also under pressure from negative carryover from a slide in copper prices to a 1-week low on signs of weakness in Chinese industrial metals demand as demand for metals during China’s peak construction season is falling short of expectations. 

On the positive side for precious metals is today’s decline in global bond yields.  Also, dovish comments today from ECB Governing Council member and Bundesbank President Nagel boosted demand for gold as a store of value when he said the probability is increasing that there will be a first interest rate cut by the ECB “before the summer break” in August.  In addition, geopolitical risks in the Middle East continue to support safe-haven demand 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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