The dollar index (DXY00) this morning jumped to a 4-3/4 month high and is up +0.86%.  The dollar raced higher today after the US March CPI report came in stronger than expected, boosting T-note yields and dampening the outlook for Fed rate cuts. Today’s slump in stocks has also boosted some liquidity demand for the dollar.  Fed swap markets have now priced in 50 bp of rate cuts for 2024, less than the 75 bp of rate cuts that were priced in last week. 

US Mar CPI rose +0.4% m/m and +3.5% y/y, stronger than expectations of +0.3% m/m and +3.4% y/y. Also, Mar CPI ex-food and energy rose +0.4% m/m and +3.8% y/y, stronger than expectations of +0.3% m/m and +3.7% y/y.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 21% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today dropped to a 1-week low and is down by -0.83%. Today's surge in the dollar is undercutting the euro after a stronger-than-expected US Mar CPI report reduced Fed rate cut expectations.  Investor caution is also weighing on the euro ahead of the results of Thursday’s ECB meeting, where the ECB is expected to keep the deposit facility rate unchanged at 4.00%. 

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on April 11 and 83% for the following meeting on June 6.

USD/JPY (^USDJPY) today is up by +0.57%.  The yen sank to a 33-year low against the dollar today after T-note yields spiked higher following the hotter-than-expected US Mar CPI report.  The yen was also under pressure based on today’s comments from BOJ Governor Ueda, who said, "We won't consider changing monetary policy at all to directly respond to moves in foreign exchange.”  The yen has underlying support from the possibility that Japanese authorities could intervene in the forex market at any time to support the yen.

Japan's Mar PPI Increased to +0.8% y/y from +0.7% y/y in Feb, right on expectations.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 4% for the April 26 meeting and 17% for the following meeting on June 14.

June gold (GCM4) this morning is up +3.4 (+0.14%), and May silver (SIK24) is up +0.356 (+1.27%).  Precious metals recovered from early losses this morning and are moderately higher.  Gold found support today from the rise in the 10-year breakeven inflation expectations rate to a 5-month high of 2.412%, boosting the demand for gold as an inflation hedge.  Also, today’s stock selloff has boosted some safe-haven demand for precious metals. In addition, precious metals have safe-haven support from Israel-Iran geopolitical risks after Iran threatened retaliation against Israel for launching airstrikes on Iranian military officials in Syria.

Precious metals prices today initially came under pressure after the dollar rallied to a 4-3/4 month high on the stronger-than-expected US Mar CPI report.  The hotter-than-expected US CPI report also reduced expectations for Fed rate cuts this year and weighed on gold prices.  In addition, higher global bond yields today are bearish for precious metals. 

• Dollar Recovers Early Losses as Stocks Falter
• 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