The dollar index (DXY00) on Friday rose by +0.45% and posted a 5-week high. The dollar on Friday garnered strength from a fall in EUR/USD to a 3-week low and a decline in GBP/USD to a 5-week low.  Also, the Chinese yuan tumbled to a 4-month low against the dollar Friday after Chinese authorities set a weaker-than-expected daily fixing, fueling speculation they would tolerate further losses in the currency.  Friday’s decline in T-note yields was a negative factor for the dollar. 

The markets are discounting the chances for a -25 bp rate cut at 17% for the next FOMC meeting on April 30-May 1 and 86% for the following meeting on June 11-12.

EUR/USD (^EURUSD) on Friday fell by 0.52% and posted a 3-week low. Strength in the dollar Friday is undercut the euro.  Also, dovish comments from ECB Governing Council member and Bundesbank President Nagel weighed on the euro when he said the probability is increasing that there will be a first interest rate cut by the ECB "before the summer break" in August.  The euro saw some underlying support from Friday’s news that the German Mar IFO business climate index rose to a 9-month high.

The German Jan import price index was unchanged m/m and fell -5.9% y/y, stronger than expectations of -0.4% m/m and -7.5% y/y.

The German Mar IFO business climate survey rose +2.1 to a 9-month high of 87.8, stronger than expectations of 86.0.

ECB Governing Council member and Bundesbank President Nagel said the probability is increasing that there will be a first interest rate cut by the ECB "before the summer break" in August, but investors shouldn't draw the conclusion that the same will happen at every subsequent meeting.

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 94% for the following meeting on June 6.

USD/JPY (^USDJPY) on Friday fell by -0.10%.  The yen on Friday recovered from a 4-1/4 month low against the dollar and posted modest gains.  Short covering in the yen emerged Friday on speculation Japan could soon intervene in the forex market in support of the yen after comments from Japanese Finance Minister Suzuki, who said the Japanese government will continue to monitor developments in currency markets with “a high sense of urgency.”  A decline in T-note yields Friday was also supportive of the yen. 

The Japan Feb national CPI rose +2.8% y/y, weaker than expectations of +2.9% y/y.  The Feb national CPI ex-fresh food and energy rose +3.2% y/y, weaker than expectations of +3.3% y/y and the smallest increase in 13 months.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 4% for the April 26 meeting and 41% for the following meeting on June 14.

April gold (GCJ4) on Friday closed down -24.7 (-1.13%), and May silver (SIK24) closed down -0.164 (-0.66%).  Precious metals on Friday retreated, with silver falling to a 1-week low.  Friday’s rally in the dollar index to a 5-week high undercut metals prices. Silver prices were also under pressure from negative carryover from a slide in copper prices to a 1-week low on signs of weakness in Chinese industrial metals demand as demand for metals during China’s peak construction season is falling short of expectations. 

On the positive side for precious metals was Friday’s decline in global bond yields.  Also, dovish comments Friday from ECB Governing Council member and Bundesbank President Nagel boosted demand for gold as a store of value when he said the probability is increasing that there will be a first interest rate cut by the ECB "before the summer break" in August. In addition, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals. 

• Dollar Gains on Weakness in Most G-10 Currencies
• Dollar Climbs on Upbeat US Economic Reports
• Dollar Rallies on Stronger-Than-Expected US Economic Reports
• Dollar Slides as FOMC Maintains 75 bp of Rate Cuts This Year