Dollar Slips as Stocks Rebound and Bond Yields Fall

Rich Asplund - Barchart - Wed Apr 17, 9:44AM CDT

The dollar index (DXY00) this morning is down by -0.09%. The dollar is under pressure today due to a rebound in stocks, which reduces liquidity demand for the dollar. Also, a decline in T-note yields today is weighing on the dollar. Losses in the dollar are contained as expectations for Fed rate cuts have fallen. According to federal funds futures contracts, the chance of a Fed rate cut at the June FOMC meeting has dropped to 17% from 66% at the start of the month.

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 17% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is up by +0.21%. The weaker dollar today has sparked some short covering in the euro. Also, hawkish comments today from ECB Governing Council member Holzmann boosted the euro when he said he's "not fully" convinced that the ECB should start cutting interest rates in June.

ECB Governing Council member Centeno said, "It's time for the ECB to change this monetary policy" due to weak economic growth and progress on disinflation.

ECB Governing Council member Holzmann said he's "not fully" convinced that the ECB should start cutting interest rates in June, citing the results of Eurozone pay discussions and rising tensions in the Middle East that pose risks for inflation.

Swaps are discounting the chances for a -25 bp rate cut by the ECB at 87% for its next meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.04%. The yen is slightly higher today after the Nikkei Stock index fell to a 2-month low, which sparked some safe-haven demand for the yen. Also, today’s decline in T-note yields is supportive of the yen. In addition, today’s jump in the 10-year JGB bond yield to a 5-month high of 0.891% strengthened the yen’s interest rate differentials. Finally, the market is wary of Japanese authorities intervening in the forex market to support the yen after it tumbled to a new 33-year low against the dollar on Tuesday.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1% for the April 26 meeting and 37% for the following meeting on June 14.

June gold (GCM4) this morning is down -1.60 (-0.07%), and May silver (SIK24) is up +0.464 (+1.64%). Precious metals today are mixed. Gold is under pressure on hawkish comments today from ECB Governing Council member Holzmann, who said he's "not fully" convinced that the ECB should start cutting interest rates in June. Gold also has some negative carryover from Tuesday when Fed Chair Powell said it may be “appropriate” to keep restrictive monetary policy in place until the labor market and inflation cools. In addition, funds continue to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-1/2 year low Tuesday.

A weaker dollar today is bullish for metals. Also, a decline in US and European government bond yields today supports precious metals. In addition, concerns about escalating geopolitical tensions in the Middle East continue to support safe-haven demand for precious metals. Silver has carryover support from today’s +1.7% rally in copper prices after Goldman Sachs said it sees a “very significant” refined copper deficit this year.

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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.