Dollar Slips on Lower Bond Yields and Stronger Stocks

Rich Asplund - Barchart - Mon Apr 29, 9:26AM CDT

The dollar index (DXY00) this morning is down by -0.14%. The dollar today is posting moderate losses, weighed down by lower T-note yields. Also, today’s stock rally has reduced liquidity demand for the dollar. In addition, strength in the yen is undercutting the dollar on reports that Japanese authorities intervened in the forex market today in support of the yen. Losses in the dollar are limited by expectations the FOMC on Wednesday will signal the Fed will delay interest rate cuts at the conclusion of its 2-day meeting.

The markets are discounting the chances for a -25 bp rate cut at 2% for the next FOMC meeting on April 30-May 1 and 13% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is up by +0.16%. The euro today is climbing on weakness in the dollar. The euro also found support from today’s report on German Apr CPI, which rose more than expected, which is a hawkish factor for ECB policy. In addition, hawkish comments today from ECB Governing Council member Wunsch boosted the euro when he said the ECB should be cautious about sending the markets a signal that it would cut rates for a second consecutive month in July.

The Eurozone Apr economic confidence indicator unexpectedly fell -0.6 to 95.6, weaker than expectations of an increase to 96.7.

German Apr CPI (EU harmonized) rose +2.4% y/y, stronger than expectations of +2.3% y/y.

ECB Governing Council member Wunsch said the ECB should be cautious about the signal that a second consecutive interest rate cut in July would send to investors as "cutting again in July would be interpreted by markets to mean that we're going to cut every meeting, and that would lead to repricing that might go too far."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 92% for its next meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.97%. The yen today recovered sharply from a 34-year low against the dollar on signs that Japanese authorities intervened in the currency market today to support the yen. Lower T-note yields today are also supportive of the yen. Movements in the yen today may be volatile with markets in Japan closed for the Showa Day holiday.

Dow Jones reported that Japanese financial authorities intervened in the foreign exchange market today to support the yen after it tumbled to a new 34-year low against the dollar.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 25% for the June 14 meeting.

June gold (GCM4) today is down -1.8 (-0.08%), and May silver (SIK24) is down -0.052 (-0.19%). Precious metals today are slightly lower. Long liquidation and position squaring today ahead of the Tue/Wed FOMC meeting weighs on precious metals. Also, expectations that the FOMC on Wednesday will signal it will delay interest rate cuts are bearish for precious metals. In addition, strength in stocks today has curbed some safe-haven demand for precious metals.

Losses in metals today are limited due to a weaker dollar. Also, lower global bond yields today are supportive of precious metals. In addition, ongoing Middle East tensions keep safe-haven demand firm for precious 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.