Dollar Falls Back on Strength in Stocks

Rich Asplund - Barchart - Mon Apr 8, 2:37PM CDT

The dollar index (DXY00) on Monday fell by -0.16%. The dollar Monday gave up early gains and turned lower on strength in stocks, which curbed liquidity demand for the dollar. Also, the strength of the euro on Monday weighed on the dollar.

The dollar on Monday initially moved higher on carryover support from last Friday’s stronger-than-expected US March payroll report of +303,000, which dampened expectations for Fed rate cuts. Also, higher T-note yields support the dollar as the 10-year T-note yield Monday climbed to a 4-1/2 month high.

The markets are discounting the chances for a -25 bp rate cut at 5% for the next FOMC meeting on April 30-May 1 and 54% for the following meeting on June 11-12.

EUR/USD (^EURUSD) on Monday rose by +0.18%. The euro Monday 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 news was mixed for the euro. 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 7% for its next meeting on April 11 and 91% for the following meeting on June 6.

USD/JPY (^USDJPY) Monday rose by +0.12%. Higher T-note yields are undercutting the yen as the 10-year T-note yield rose to a 4-1/2 month high Monday. Also, the yen was under pressure from Monday’s news that showed the Mar eco watchers outlook survey unexpectedly declined. A positive factor for the yen was Monday’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 Monday’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 11% for the following meeting on June 14.

June gold (GCM4) on Monday closed up +5.6 (+0.24%), and May silver (SIK24) closed up +0.304 (+1.11%). Precious metals settled moderately higher on Monday, 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 on Monday was 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. In addition, precious metals 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.

Strength in stocks Monday limited safe-haven demand for precious metals. Also, higher global government bond yields on Monday were negative for precious metals.

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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.