The dollar index (DXY00) on Thursday fell to a 2-1/2 week low and finished down by -0.40%.  The dollar was weighed down Thursday by a decline in T-note yields.  Also, Thursday’s stock rally reduced the liquidity demand for the dollar.  In addition, the dollar had a 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.  Thursday’s US economic reports were dollar-friendly, showing weekly jobless claims rose less than expected, and Q1 unit labor costs rose more than expected, hawkish factors for Fed policy. 

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 10% for the June 11-12 FOMC meeting and 34% for the following meeting on July 30-31.

EUR/USD (^EURUSD) Thursday rose by +0.14%.  The euro recovered from early losses Thursday and posted moderate gains as dollar weakness sparked short covering in the euro.  The euro initially moved lower on Thursday due to central bank policy divergence, as the ECB is 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 95% for its next meeting on June 6.

USD/JPY (^USDJPY) Thursday fell by -0.88%.  The yen moved higher Thursday on concern that Japanese authorities could intervene in the currency market to support the yen.  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.  Gains in the yen accelerated Thursday after T-note yields declined.  A bearish factor for the yen was an unexpected decline in the Japan Apr consumer confidence index. 

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) Thursday closed down -1.4 (-0.06%), and July silver (SIN24) closed up +0.081 (+0.30%).  Precious metals Thursday settled mixed.  Precious metals were under pressure Thursday on the likelihood that the Fed will delay interest rate cuts in the medium term.  Also, Thursday’s US economic news on weekly jobless claims and Q1 nonfarm productivity were hawkish for Fed policy and bearish for precious metals. 

Gold and silver recovered from their worst levels Thursday, with silver climbing into positive territory after the dollar index tumbled to a 2-1/2 week low.  Also, a decline in global government bond yields on Thursday supported precious metals.  Metals also had carryover support from Wednesday when Fed Chair Powell said it’s “unlikely” the next move by the Fed will be a rate hike.  In addition, 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.

• Stocks Higher on Economic Optimism
• Dollar Recovers and Gold Falls as T-Note Yields Climb
• Stocks Rebound Ahead of Apple’s Earnings
• Dollar Slides and Gold Jumps as Powell Downplays a Fed Rate Hike