The dollar index (DXY00) on Tuesday recovered from a 2-1/2 week low and ended slightly higher.  Short covering in the dollar emerged Tuesday after stocks retreated, which sparked some liquidity demand for the dollar.  The dollar on Tuesday initially moved lower due to a decline in T-note yields.  The dollar was also under pressure on caution ahead of Wednesday’s US CPI report. 

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 60% for the following meeting on June 11-12.

EUR/USD (^EURUSD) on Tuesday fell by -0.08%.  The euro Tuesday fell back from a 2-1/2 week high and posted modest losses.  The euro on Tuesday initially moved higher on carryover support from Monday on signs of improvement in the Eurozone economy after Eurozone Sentix Apr investor confidence and German Feb industrial production rose more than expected. 

In its quarterly Bank Lending Survey, the ECB said demand for corporate loans in the Eurozone saw a "substantial decline" in Q1 as the region continues to reel from elevated borrowing costs.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 6% for its next meeting on April 11 and 92% for the following meeting on June 6.

USD/JPY (^USDJPY) on Tuesday fell by -0.04%.  The yen posted modest gains against the dollar due to falling T-note yields.  Also, a Bloomberg report Tuesday said the BOJ may boost its inflation forecast at this month’s policy meeting, which would be hawkish for BOJ policy.  In addition, hawkish comments Tuesday from BOJ Governor Ueda were supportive of the yen when he said the BOJ may have to reduce easing measures if price trends continue to rise.

The Japan Mar consumer confidence index rose +0.5 to a 4-3/4 year high of 39.5, right on expectations.

Japan Mar machine tool orders fell -3.8% y/y and the fifteenth consecutive month orders have declined.

Bloomberg reported that the Bank of Japan (BOJ) will likely consider raising its inflation forecast at a policy meeting later this month after strong results were seen from annual wage negotiations of Japanese workers.

BOJ Governor Ueda said, "We have to consider reducing the degree of monetary easing if the underlying price trend rises along with our outlook."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 15% for the following meeting on June 14.

June gold (GCM4) on Tuesday closed up +11.4 (+0.48%), and May silver (SIK24) closed up +0.177 (+0.64%).  Precious metals closed moderately higher on Tuesday, with June gold climbing to a contract high and nearest-futures April gold posting an all-time high.  Also, May silver posted a contract high, and nearest-futures Apr silver climbed to a 2-3/4 year high. 

Dollar weakness and lower global bond yields Tuesday were supportive factors for metals prices. Also, precious metals have safe-haven support from heightened geopolitical risks between Iran and Israel. Iran has threatened retaliation against Israel for launching airstrikes on Iranian military officials in Syria, boosting safe-haven demand for precious metals.  In addition, short covering ahead of the release of Wednesday’s US consumer price report for March lifted precious metals prices.   Gold and silver fell back from their best levels Tuesday after the dollar index rebounded from a 2-1/2 week low.

• Dollar Declines on Higher Stocks and Lower T-Note Yields
• Dollar Falls Back on Strength in Stocks
• Dollar Gives Up Early Gains on Euro Strength
• Dollar Ends Higher on US Labor Market Strength