The dollar index (DXY00) on Monday fell by -0.29%.  The dollar on Monday posted moderate losses, weighed down by lower T-note yields.  Also, Monday’s stock rally reduced liquidity demand for the dollar.  In addition, strength in the yen undercut the dollar on reports that Japanese authorities intervened in the forex market Monday in support of the yen.  Losses in the dollar are limited by expectations that the FOMC on Wednesday will signal the Fed will delay interest rate cuts at the conclusion of its 2-day meeting.

Monday’s US economic news was bearish for the dollar after the Apr Dallas Fed manufacturing outlook survey unexpectedly fell -0.1 to -14.5, weaker than expectations of an increase to -11.2.

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) on Monday rose by +0.24%.  The euro on Monday found support on weakness in the dollar. The euro also rose on Monday’s report on German Apr CPI, which increased more than expected, which is a hawkish factor for ECB policy.  In addition, hawkish comments Monday from ECB Governing Council members Knot and Wunsch boosted the euro when they 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 Knot said the ECB should proceed cautiously after a probable rate cut in June, with quarterly data on wages likely to be key in determining further moves.

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 91% for its next meeting on June 6.

USD/JPY (^USDJPY) on Monday fell by -1.48%.  The yen on Monday recovered sharply from a 34-year low against the dollar on signs that Japanese authorities intervened in the currency market to support the yen.  Lower T-note yields on Monday were also supportive of the yen.  Movements in the yen Monday were volatile due to thin trading with markets closed in Japan 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 24% for the June 14 meeting.

June gold (GCM4) on Monday closed up +10.5 (+0.35%), and May silver (SIK24) closed up +0.121 (+0.44%).  Precious metals recovered from early losses on Monday and posted moderate gains.  A weaker dollar on Monday was supportive of metals.  Also, lower global bond yields on Monday were bullish for precious metals. In addition, ongoing Middle East tensions keep safe-haven demand firm for precious metals. 

Precious metals initially moved lower on Monday due to long liquidation and position squaring ahead of the Tuesday/Wednesday FOMC meeting.  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 on Monday curbed some safe-haven demand for precious metals.   

• Strong Q1 Earnings and Lower Bond Yields Boost Stocks
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• Dollar Gains on Persistent US Price Pressures and Yen Weakness