Dollar Recovers and Gold Falls as T-Note Yields Climb

Rich Asplund - Barchart - Thu May 2, 9:32AM CDT

The dollar index (DXY00) this morning is up by +0.12%. The dollar recovered from early losses today and moved higher as T-note yields rose after today’s US economic reports showed weekly jobless claims rose less than expected and Q1 unit labor costs rose more than expected, hawkish factors for Fed policy. The dollar today initially moved lower on negative carryover from Wednesday when Fed Chair Powell said it was “unlikely” that the Fed's next policy move would be to raise interest rates.

Weekly US initial unemployment claims were unchanged at 208,000, showing a stronger labor market than expectations of an increase to 211,000.

US Q1 nonfarm productivity rose +0.3%, weaker than expectations of +0.5%. Q1 unit labor costs rose +4.7%, stronger than expectations of +4.0%.

US Mar factory orders rose +1.6% m/m, right on expectations and the biggest increase in 4 months.

The markets are discounting the chances for a -25 bp rate cut at 15% for the June 11-12 FOMC meeting and 35% for the following meeting on July 30-31.

EUR/USD (^EURUSD) today is down by -0.30%. The euro is posting modest losses today, weighed down by a decline in European government bond yields. Also, central bank policy divergence is bearish for the euro, with the ECB expected to cut interest rates next month while the Fed delays rate cuts.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for its next meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.08%. The yen is slightly higher today on concern that any additional yen weakness could spark intervention in the currency market by Japanese authorities. According to Bloomberg estimates, the BOJ intervened in the forex market late Wednesday for about 3.5 trillion yen ($22.6 billion), the second time this week Japan has intervened in the currency market to support the yen. 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. Higher T-note yields today are bearish for the yen. Also, an unexpected decline in the Japan Apr consumer confidence index is negative for the yen.

The Japan Apr consumer confidence index unexpectedly fell -1.2 to 38.3, weaker than expectations of an increase to 39.8.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 11% for the June 14 meeting.

June gold (GCM4) this morning is down -12.5 (-0.53%), and July silver (SIN24) is down -0.113 (-0.42%). Precious metals today gave up an early advance and turned lower, with silver falling to a 1-month low. Precious metals slid after the dollar index recovered from early losses and moved higher. Precious metals are also under pressure today on the likelihood that the Fed will delay interest rate cuts in the medium term. Also, today’s US economic news on weekly jobless claims and Q1 nonfarm productivity were hawkish for Fed policy and bearish for precious metals.

Losses in precious metals are limited on carryover support from Wednesday when Fed Chair Powell said it’s “unlikely” the next move by the Fed will be a rate hike. Also, strong gold buying from the world’s central banks supports gold after the World Gold Council reported that global central banks added 290 tons of gold to their holdings in Q1, the largest Q1 increase since data began in 2000.

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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.