Dollar Modestly Higher on Weakness in the Euro

Rich Asplund - Barchart - Wed Mar 27, 9:40AM CDT

The dollar index (DXY00) this morning is up by +0.09%. Dovish ECB comments today undercut the euro and gave the dollar a boost. Gains in the dollar are limited after the yen recovered from a 33-year low and moved higher on speculation that Japanese authorities may soon intervene in currency markets to support the yen after Japan's Ministry of Finance, Bank of Japan, and Financial Services Agency held an unscheduled meeting today.

US weekly MBA mortgage applications fell -0.7% in the week ended March 22. The refinancing mortgage sub-index fell -1.6%, and the purchase mortgage sub-index fell -0.2%. The average 30-year fixed rate mortgage fell -4 bp to 6.93% from 6.97%.

The markets are discounting the chances for a -25 bp rate cut at 14% for the next FOMC meeting on April 30-May 1 and 77% for the following meeting on June 11-12.

EUR/USD (^EURUSD) this morning is down by -0.14%. The euro is under pressure today due to dovish comments from ECB Governing Council member Kazaks and ECB Executive Board member Cipollone, who expressed support for an ECB rate cut at the June meeting. Losses in the euro were contained after today’s Eurozone economic confidence report rose more than expected.

ECB Governing Council member Kazaks said, "Inflation is low and will continue to fall in the whole Eurozone," and June may be a good time for the ECB to begin lowering borrowing costs.

ECB Executive Board member Cipollone said, "If incoming data confirm the scenario foreseen in the March projections, the ECB should stand ready to swiftly dial back its restrictive monetary policy stance."

The Eurozone Mar economic confidence index rose +0.8 to 96.3, stronger than expectations of 96.2.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 12% for its next meeting on April 11 and 99% for the following meeting on June 6.

USD/JPY (^USDJPY) this morning is down by -0.20%. The yen today rebounded from a 33-year low against the dollar and moved higher on speculation that Japanese authorities may be preparing to intervene in currency markets to support the yen after Japan's Ministry of Finance, Bank of Japan, and Financial Services Agency held an unscheduled meeting. Also, comments from Finance Minister Suzuki and Japan's top currency official Kanda sparked short covering in the yen when they said they were watching forex market moves “with a high sense of urgency.”

Speculation mounted that Japanese authorities may be preparing to intervene in currency markets to support the yen as Japan's Ministry of Finance, Bank of Japan, and Financial Services Agency held an unscheduled meeting to discuss international financial markets after the yen fell to a 33-year low against the dollar. Finance Minister Suzuki said, "4% forex moves in 2 weeks are not moderate, and we are watching market moves with a high sense of urgency."

Japan's top currency official Kanda said, "The recent weakening of the yen cannot be said to be in line with fundamentals, and it is clear that speculative moves are behind the yen's fall. We will take appropriate action against excessive moves without ruling out any options."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 2% for the April 26 meeting and 38% for the following meeting on June 14.

April gold (GCJ4) this morning is up +12.2 (+0.56%), and May silver (SIK24) is up +0.087 (+0.35%). Precious metals today are moderately higher. Gold has support today on dovish comments from ECB Governing Council member Kazaks and ECB Executive Board member Cipollone. Also, today’s decline in global bond yields is supporting precious metals. In addition, geopolitical tensions in the Middle East are boosting safe-haven demand for precious metals after talks for a cease-fire between Israel and Hamas stalled.

On the negative side, a stronger dollar today is bearish for metals. Also, strength in stocks today has reduced safe-haven demand for precious metals. Gains in silver are limited due to negative carryover from today’s slide in copper prices to a 2-week low.

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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.