Dollar Slightly Weaker as Bond Yields Dip Before the FOMC Meeting

Rich Asplund - Barchart - Wed May 1, 9:36AM CDT

The dollar index (DXY00) this morning fell back from a 2-week high and is down -0.05%. The dollar today gave up early gains and turned lower as bond yields dipped from weaker-than-expected US economic news on Mar JOLTS job openings and the Apr ISM manufacturing index. The dollar today initially moved higher after the stronger-than-expected Apr ADM employment report. The dollar is also supported by expectations that the FOMC and Fed Chair Powell this afternoon will signal the Fed will keep interest rates higher for longer.

Weekly US MBA mortgage applications fell -2.3% in the week ended April 26. The purchase mortgage sub-index fell -1.7% and the refinancing sub-index fell -3.3%. The average 30-year fixed rate mortgage rose +0.05 bp to 7.29% from 7.24% in the prior week.

The US Apr ADP employment change rose +192,000, stronger than expectations of +183,000. Also, Mar was revised upward to +208,000 from the previously reported +184,000.

The US Mar JOLTS job openings fell -325,000 to a 3-year low of 8.488 million, showing a weaker labor market than expectations of 8.680 million.

The US Apr ISM manufacturing index fell -1.1 to 49.2, weaker than expectations of 50.0. The Apr ISM prices paid sub-index unexpectedly rose +5.1 to a 1-3/4 year high of 60.9 versus expectations of a decline to 55.4.

US Mar construction spending unexpectedly fell -0.2% m/m, weaker than expectations of an +0.3% m/m increase.

The markets are discounting the chances for a -25 bp rate cut at 1% for today’s FOMC meeting and 9% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is up by +0.18%. The euro today recovered from a 1-week low and is moderately higher. A pullback in the dollar today sparked some short covering in the euro. Trading activity in the euro is limited today, with most of Europe closed for the May Day holiday.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 85% for its next meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.22%. A decline in T-note yields today is supporting moderate gains in the yen. The yen also has support on concern that any additional yen weakness could spark intervention in the currency market by Japanese authorities. The yen recovered sharply from a 34-year low against the dollar on Monday after Japan intervened in the forex market to stem the yen’s slide.

The Japan Apr Jibun Bank manufacturing PMI was revised downward by -0.3 to 49.6 from the previously reported 49.9.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1this 2% for the June 14 meeting.

June gold (GCM4) this morning is up +15.5 (+0.67%), and July silver (SIN24) is up +0.171 (+0.64%). Precious metals this morning are moderately higher. A weaker dollar today is bullish for metals. Also, some mild short covering today is boosting precious metals prices after Tuesday’s plunge. Demand for gold as an inflation hedge increased today after the US Apr ISM prices paid sub-index unexpectedly rose to a 1-3/4 year high.

Gains in precious metals are limited by expectations that the FOMC and Fed Chair Powell will signal higher for longer interest rates at the end of today’s FOMC meeting. Fund liquidation also weighs on gold prices after long gold holdings in ETFs fell to a 4-1/2 year low on Tuesday. A negative factor for silver prices was today’s weaker-than-expected US economic reports on Mar construction spending and the Apr ISM manufacturing index, bearish factors for industrial metals demand.

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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.