Dollar Climbs and Gold Falls as US Labor Costs Accelerate

Rich Asplund - Barchart - Tue Apr 30, 9:32AM CDT

The dollar index (DXY00) today is up by +0.28%. The dollar is moving higher today after T-note yields jumped when the US Q1 employment cost index rose more than expected, a sign of wage pressures and a hawkish factor for Fed policy. Falling stock prices today are also boosting liquidity demand for the dollar. The dollar is also supported by expectations that the FOMC on Wednesday will signal the Fed will delay interest rate cuts at the conclusion of its 2-day meeting. The dollar fell back from its best levels on this morning’s weaker-than-expected US economic reports on Apr MNI Chicago PMI and the Apr consumer confidence.

The US Q1 employment cost index rose +1.2% q/q, stronger than expectations of +1.0% q/q.

The US Feb S&P CoreLogic composite-20 home price index rose +6.38% y/y, right on expectations and the largest increase in 15 months.

The US Apr MNI Chicago PMI unexpectedly fell -3.5 to 37.9, weaker than expectations of an increase to 45.0 and the steepest pace of contraction in 17 months.

The Conference Board US Apr consumer confidence index fell -6.1 to a 1-3/4 year low of 97.0, weaker than expectations of 104.0.

The markets are discounting the chances for a -25 bp rate cut at 1% for the next FOMC meeting on April 30-May 1 and 10% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is down by -0.06%. The euro is under pressure today from a stronger dollar. Also, today’s Eurozone CPI report showed Apr core CPI easing to a 2-year low of +2.7% y/y, a dovish factor for ECB policy. Losses in the euro are contained after today’s economic news showed Eurozone Q1 GDP rose more than expected, and German Mar retail sales posted their biggest increase in more than two years.

Eurozone Q1 GDP rose +0.3% q/q and +0.4% y/y, stronger than expectations of +0.1% q/q and +0.2% y/y.

Eurozone Apr CPI was unchanged from Mar at +2.4% y/y, right on expectations. The Apr core CPI eased to a 2-year low of +2.7% y/y from +2.9% y/y in Mar.

German Mar retail sales rose +1.8% m/m, stronger than expectations of +1.4% m/m and the largest increase in 2-1/4 years.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 89% for its next meeting on June 6.

USD/JPY (^USDJPY) today is up by +0.59%. The yen is under pressure today from rising T-note yields. Also, today’s news that showed Japan Mar retail sales fell more than expected is bearish for the yen. On the positive side for the yen was today’s news that showed Japan's Mar industrial production rose more than expected by the most in 1-3/4 years.

Japan's Mar industrial production rose +3.8% m/m, stronger than expectations of +3.3% m/m and the largest increase in 1-3/4 years.

Japan Mar retail sales fell -1.2% m/m, weaker than expectations of -0.2% m/m.

A Bloomberg analysis of BOJ accounts suggests the BOJ intervened in the forex market Monday for around 5.5 trillion yen ($35 billion) to support the yen.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 15% for the June 14 meeting.

June gold (GCM4) this morning is down -37.5 (-1.59%), and May silver (SIK24) is down -0.708 (-2.59%). Precious metals today are moderately lower, with silver falling to a 3-week low. Today's stronger dollar and higher global bond yields weigh precious metals prices. Also, today’s stronger-than-expected US Q1 employment cost index may keep the Fed from cutting interest rates and is negative for precious metals. Gold prices are also weighed down as funds continued to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-1/2 year low on Monday. Finally, expectations that the FOMC on Wednesday will signal it will delay interest rate cuts are bearish for precious metals.

Precious metals recovered from their worst levels today after US Apr consumer confidence fell to a 1-3/4 year low and after the Apr MNI Chicago PMI unexpectedly contracted by the most in 17 months, dovish factors for Fed policy.

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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.