Dollar Gives Up Early Gains on Euro Strength

Rich Asplund - Barchart - Mon Apr 8, 9:45AM CDT

The dollar index (DXY00) this morning is down by -0.05%. The dollar today gave up early gains and turned lower on strength in the euro. The dollar initially moved higher today on carryover support from last Friday’s stronger-than-expected US March payroll report, which dampened expectations for Fed rate cuts. Also, higher T-note yields are supportive of the dollar as the 10-year T-note yield today climbed to a 4-1/2 month high.

The markets are discounting the chances for a -25 bp rate cut at 6% for the next FOMC meeting on April 30-May 1 and 52% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is up by +0.10%. The euro today recovered from early losses and moved higher due to stronger-than-expected Eurozone confidence and German industrial production reports.

The Eurozone Apr Sentix investor confidence index rose +4.6 to a 2-year high of -5.9, stronger than expectations of -8.3.

German Feb industrial production rose +2.1% m/m, stronger than expectations of +0.5% m/m and the biggest increase in 13 months.

German trade data was mixed. German Feb exports fell -2.0% m/m, weaker than expectations of -0.5% m/m. Feb imports unexpectedly rose +3.2% m/m versus expectations of -1.2% m/m.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 6% for its next meeting on April 11 and 93% for the following meeting on June 6.

USD/JPY (^USDJPY) today is up by +0.13%. Higher T-note yields are undercutting the yen as the 10-year T-note yield rose to a 4-1/2 month high today. Also, the yen was under pressure after today’s news that Mar eco watchers outlook survey unexpectedly declined. A positive factor for the yen was today’s report that showed Feb labor cash earnings rose by the most in 8 months, a hawkish factor for BOJ policy. The yen also found support on today’s jump in the 10-year JGB bond yield to a 4-month high, which supported the yen’s interest rate differentials.

The Japan Mar eco watchers outlook survey unexpectedly fell -1.8 to 51.2, weaker than expectations of an increase to 53.3.

Japan Feb labor cash earnings rose +1.8% y/y, right on expectations and the largest increase in 8 months.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 9% for the following meeting on June 14.

June gold (GCM4) this morning is down -4.4 (-0.19%), and May silver (SIK24) is down -0.043 (-0.16%). Precious metals this morning gave up early gains and turned lower. Precious metals prices are being undercut by higher global government bond yields and strength in stocks, which is curbing safe-haven demand for precious metals.

Precious metals today initially moved higher, with June gold climbing to a contract high and nearest-futures April gold climbing to an all-time high. Also, May silver posted a contract high, and nearest-futures Apr silver posted a 2-3/4 year high. A weaker dollar today is bullish for metals. Also, strong central bank demand for gold is boosting prices after gold bullion held by the PBOC rose +0.2% in March to 72.74 million troy ounces, the seventeenth consecutive month that gold purchases have increased.

Precious metals also have safe-haven support from heightened geopolitical risks between Iran and Israel. Iran has threatened retaliation against Israel for launching airstrikes on Iranian military officials in Syria, boosting safe-haven demand for precious metals. Finally, fund buying of silver is supporting silver prices after long silver holdings in ETFs rose to a 7-1/2 month high last Friday.

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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.