The dollar index (DXY00) on Monday rallied to a 1-1/2 week high and finished up +0.14%.  Strength in T-note yields on Monday supported the dollar as the 10-year T-note yield climbed to a 3-week high.  Also, Monday’s US economic news supported the dollar after the NAHB housing market index unexpectedly rose to an 8-month high.  Gains in the dollar were limited as a sharp rally in stocks Monday curbed liquidity demand for the dollar. 

The US Mar NAHB housing market index unexpectedly rose +3 to an 8-month high of 51, stronger than expectations of no change at 48.

The markets are discounting the chances for a -25 bp rate cut at the Tue/Wed FOMC meeting at 1%, at 9% for the following meeting on April 30-May 1, and 59% for the meeting after that on June 11-12.

EUR/USD (^EURUSD) on Monday dropped to a 1-1/2 week low and finished down by -0.16%.  The euro on Monday gave up an early advance and moved lower on dovish comments from ECB Governing Council member de Cos who said the ECB will probably start cutting interest rates in June.  The euro Monday initially moved higher on strength in German bund yields after the 10-year German bund yield rose to a 2-week high. 

ECB Governing Council member de Cos said, "The announcement last week that we have completed our goal of getting inflation to 2% is compatible with a cut in interest rates soon, and that could probably happen in June."

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on April 11 and 80% for the following meeting on June 6.

USD/JPY (^USDJPY) on Monday rose by +0.05%.  The yen Monday fell to a 1-week low against the dollar on strength in T-note yields.  Also, weaker-than-expected Japanese economic news was bearish for the yen after June core machine orders fell more than expected.  Losses in the yen were contained by short covering ahead of Tuesday’s BOJ meeting, which could surprise the markets if the BOJ decides to exit its negative interest rate policy since the swap markets are discounting that possibility at only 46%.

Japan Jan core machine orders fell -1.7% m/m, weaker than expectations of -0.7% m/m.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 46% for Tuesday’s meeting and 77% for the following meeting on April 26.

April gold (GCJ4) Monday closed up +2.8 (+0.13%), and May silver (SIK24) closed down -0.116 (-0.46%).  Precious metals on Monday settled mixed.  Short covering ahead of the Tue/Wed FOMC meeting supports precious metals.  Also, demand for gold as an inflation hedge rose Monday after the 10-year breakeven inflation rate rose to a 1-1/2 week high.  Silver garnered support on Monday’s global economic news that showed China's Feb industrial production rose more than expected, and the US Mar NAHB housing market index unexpectedly rose, supportive factors for industrial metals demand.  In addition, precious metals have underlying support from Middle East geopolitical tensions. 

On the negative side, Monday’s rally in the dollar index to a 1-1/2 week high is bearish for metals. Also, higher T-note yields on Monday are negative for precious metals.  In addition, Monday’s stock rally has curbed safe-haven demand for precious metals.

• Dollar Sees Support From Higher T-note Yields
• Dollar Sees Modest Gain on Higher T-note Yields and Weak Stocks
• Dollar Slightly Higher on Weak Stocks and Strength in T-note Yields
• Dollar Higher on Hawkish US PPI and Sharp T-note Yield Rise