The dollar index (DXY00) this morning is down by -0.17%.  The dollar gave up an overnight rally and turned moderately lower.  The dollar spiked higher in overnight trade after US officials said Israel launched a retaliatory air strike against Iran in response to Iran’s rocket and drone attack on Israel last weekend.  However, the dollar gave up its gains and turned lower on signs the damage was minimal, and an Iranian military official downplayed the attack.  Lower T-note yields today are also weighing on the dollar.   

Losses in the dollar are limited as Fed rate-cut expectations have dropped sharply due to recent strength in US economic news and hawkish Fed comments.  Swap markets are discounting the chance of a Fed rate cut at the June FOMC meeting at 19%, much less than the 66% chance the market had priced in earlier this month. 

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 19% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is up by +0.29%.  The euro recovered from overnight losses and is moderately higher. The dollar gave back an overnight advance and turned lower, which sparked short covering in EUR/USD.  Also, today’s stronger-than-expected German Mar producer price report is hawkish for ECB policy and gave the euro a boost.  Today’s jump in the 10-year German bund yield to a 4-1/2 month high also strengthens the euro’s interest rate differentials. Gains in the euro are limited after ECB President Lagarde said the disinflation process in the Eurozone has continued and growth prospects remain subpar by historical standards.

German Mar PPI rose +0.2% m/m and fell -2.9% y/y, stronger than expectations of +0.1% m/m and -3.3% y/y.

ECB Governing Council member Simkus said the Eurozone can afford a "less restrictive monetary policy stance, and I think three rate cuts by the ECB this year is consistent with the baseline.  Whether we'll have four will depend on the data."

Swaps are discounting the chances for a -25 bp rate cut by the ECB at 85% for its next meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.11%.  The yen is moving higher today due to increased safe-haven demand from escalating tensions between Israel and Iran and after the Nikkei Stock Index tumbled to a 2-1/4 month low.  A decline in T-note yields today is also supportive of the yen.  Gains in the yen are limited on today’s weaker-than-expected Japan Mar national CPI report, which is dovish for BOJ policy. 

Japan's Mar national CPI eased to +2.7% y/y from +2.8% y/y in Feb, weaker than expectations of no change at +2.8% y/y.  Mar national CPI ex-fresh food and energy eased to +2.9% y/y from +3.2% y/y in Feb, weaker than expectations of +3.0% y/y.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1% for the April 26 meeting and 38% for the following meeting on June 14.

June gold (GCM4) this morning is up +5.0 (+0.21%), and May silver (SIK24) is up +0.165 (+0.58%).  Precious metals today are moderately higher.  Precious metals spiked sharply higher in overnight trade on increased safe-have demand after US officials said Israel launched an overnight airstrike against Iran.  However, precious metals gave up most of their advance after an Iranian military official downplayed the severity of the incidents.  Gold prices are also under pressure as funds continue to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-1/2 year low Thursday. 

Weakness in the dollar today and lower T-note yields support precious metals.  Also, dovish comments today from ECB Governing Council member Simkus were positive for precious metals demand as a store of value when he said the Eurozone could afford a "less restrictive monetary policy stance,” and he supports three or four rate ECB rate cuts this year.  Silver has carryover support from today’s rally in copper prices to a 1-3/4 year high.

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