Dollar Falls as Easing Bank Turmoil Saps Liquidity Demand

Rich Asplund - Barchart - Mon Mar 27, 2023

The dollar index (DXY00) on Monday fell by -0.26%. The dollar Monday posted moderate losses as an easing of banking concerns sparked a rally in stocks and reduced the liquidity demand for the dollar. Higher T-note yields Monday limited losses in the dollar.

Monday’s U.S. economic data was bearish for the dollar. The Mar Dallas Fed manufacturing outlook level of general business activity index unexpectedly fell -2.2 to -15.7, weaker than expectations of an increase to -10.0.

Comments Sunday from Minneapolis Fed President Kashkari were slightly bearish for the dollar when he said recent bank turmoil had increased the risk of a U.S. recession but that it was too soon to judge what it means for the economy and monetary policy.

EUR/USD (^EURUSD) on Monday rose by +0.33%. The euro on Monday rose moderately on a report from Bloomberg that said ECB Executive Board member Schnabel pushed for the ECB's post-meeting statement this month to say that more interest rate hikes are possible in the future. EUR/USD also garnered support from Monday’s economic news that showed German Mar IFO business confidence unexpectedly rose to a 13-month high.

Monday’s Eurozone economic news was bullish for the euro. Eurozone Feb M3 money supply rose +2.9% y/y, weaker than expectations of +3.2% y/y and the slowest pace of increase in more than eight years. Also, the German Mar IFO business climate index unexpectedly rose +2.1 to a 13-month high of 93.3, stronger than expectations of a decline to 91.0.

USD/JPY (^USDJPY) on Monday rose by +0.63%. The yen was under pressure Monday as an easing of the recent banking turmoil sparked a rally in stocks and reduced the safe-haven demand for the yen. Also, higher T-note yields Monday weighed on the yen.

Monday’s Japanese economic news was supportive of the yen. Feb PPI services prices rose +1.8% y/y, stronger than expectations of +1.7% y/y. Also, the Jan leading index CI was revised upward by +0.1 to 96.6 from the initially reported 96.5.

April gold (GCJ3) on Monday closed down -30.00 (-1.51%), and May silver (SIK23) closed down -0.194 (-0.83%). Precious metals on Monday posted moderate losses. An easing of the recent banking turmoil has sparked long liquidation in precious metals as U.S. authorities consider further measures to shore up the balance sheets of regional banks. Higher global bond yields on Monday were also bearish for metals prices. On the positive side, the recent banking turmoil has sparked fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 6-week high last Friday. Also, a weaker dollar Monday was supportive of 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.