Dollar Declines on Higher Stocks and Lower T-Note Yields

Rich Asplund - Barchart - Tue Apr 9, 9:50AM CDT

The dollar index (DXY00) this morning is down by -0.21% at a 2-1/2 week low. Strength in stocks today has curbed liquidity demand for the dollar. The dollar is also under pressure today from position squaring ahead of Wednesday’s US consumer price report for March. In addition, lower T-note yields today are undercutting the dollar.

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 57% for the following meeting on June 11-12.

EUR/USD (^EURUSD) today is up by +0.16% at a 2-1/2 week high. Weakness in the dollar today is boosting the euro. The euro also has carryover support from Monday on signs of improvement in the Eurozone economy after Eurozone Sentix Apr investor confidence and German Feb industrial production rose more than expected.

In its quarterly Bank Lending Survey, the ECB said demand for corporate loans in the Eurozone saw a "substantial decline" in Q1 as the region continues to reel from elevated borrowing costs.

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 91% for the following meeting on June 6.

USD/JPY (^USDJPY) today is down by -0.08%. The yen is climbing against the dollar today due to falling T-note yields. Also, a Bloomberg report today said the BOJ may boost its inflation forecast at this month’s policy meeting, which supports the yen. In addition, hawkish comments today from BOJ Governor Ueda were supportive of the yen when he said the BOJ may have to reduce easing measures if price trends continue to rise.

The Japan Mar consumer confidence index rose +0.5 to a 4-3/4 year high of 39.5, right on expectations.

Japan Mar machine tool orders fell -3.8% y/y and the fifteenth consecutive month orders have declined.

Bloomberg reported that the Bank of Japan (BOJ) will likely consider raising its inflation forecast at a policy meeting later this month after strong results were seen from annual wage negotiations of Japanese workers.

BOJ Governor Ueda said, "We have to consider reducing the degree of monetary easing if the underlying price trend rises along with our outlook."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 15% for the following meeting on June 14.

June gold (GCM4) this morning is up +28.0 (+1.19%), and May silver (SIK24) is up +0.553 (+1.99%). Precious metals today are moderately higher, with June gold climbing to a contract high and nearest-futures April gold posting an all-time high. Also, May silver posted a contract high, and nearest-futures Apr silver climbed to a 2-3/4 year high.

Dollar weakness and lower global bond yields today are supportive of metals prices. Also, 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. In addition, short covering ahead of the release of Wednesday’s US consumer price report for March is lifting precious metals prices.

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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.