The dollar index (DXY00) on Thursday climbed to a 4-3/4 month high and slightly higher.  Higher T-note yields Thursday supported the dollar after the 10-year T-note yield rose to a 4-3/4 month high.  Also, Thursday’s US weekly initial unemployment claims report fell more than expected to a 5-week low, a sign of labor market strength that was hawkish for Fed policy.  In addition, hawkish Fed comments Thursday gave the dollar a boost when several policymakers said the Fed could take its time before cutting interest rates. 

The dollar gave up most of its advance Thursday and turned slightly lower as stocks rallied, which reduced liquidity demand for the dollar.  Also, Thursday’s US Mar PPI report rose less than expected, a dovish factor for Fed policy. 

US Mar PPI final demand rose +0.2% m/m and +2.1% y/y, slightly weaker than expectations of +0.3% m/m and +2.2% y/y.  However, Mar PPI ex-food and energy accelerated to +2.4% y/y from +2.0% y/y in Feb, slightly stronger than expectations of +2.3% y/y and the largest increase in 7 months.

US weekly initial unemployment claims fell -11,000 to a 5-week low of 211,000, showing a stronger labor market than expectations of 215,000.

New York Fed President Williams said the Fed has made “tremendous progress” toward better balance on its inflation and employment goals, but there’s no need to cut interest rates in the “very near term.” 

Richmond Fed President Barkin said the Fed still has some work to do to contain price pressures and can "take its time" before cutting interest rates.

Boston Fed President Collins said recent data have eased concerns about an "imminent need" to adjust interest rates, though she still expects rate cuts to begin later this year.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 24% for the following meeting on June 11-12.

EUR/USD (^EURUSD) on Thursday fell to an 8-week low and finished the day down by -0.15%.  The euro came under pressure Thursday after the ECB signaled it will begin to cut interest rates soon if inflation continues to fall.  Also, Thursday’s comments from ECB President Lagarde weighed on the euro when she said risks to the growth outlook are tilted to the downside.

The ECB, as expected, kept its deposit facility rate unchanged at 4.00% and said, "If the Governing Council's updated assessment of the inflation outlook were to further increase confidence that inflation is converging to the 2% target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction."

ECB President Lagarde said risks to the growth outlook are tilted to the downside, and inflation will fluctuate and then decline to the ECB's target.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 88% for its next meeting on June 6 and fully priced in (+136%) that rate cut for the following meeting on July 18.

USD/JPY (^USDJPY) Thursday rose by +0.05%.  The yen on Thursday fell to a fresh 33-year low against the dollar. Strength in T-note yields undercut the yen after the 10-year T-note yield Thursday rose to a 4-3/4 month high.  Weakness in the yen was limited by speculation that Japanese authorities might soon intervene in the currency market to support the yen after Japan's top currency official, Vice Finance Minister for International Affairs Kanda, said authorities will consider "all their options for the foreign exchange market" and are ready to respond to any event.  Thursday’s jump in the 10-year JGB bond yield to a 4-3/4 month high of 0.871% also supported the yen. 

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 2% for the April 26 meeting and 30% for the following meeting on June 14.

June gold (GCM4) Thursday closed up +24.3 (+1.03%), and May silver (SIK24) closed up +0.198 (+0.71%).  Precious metals Thursday settled moderately higher.  Thursday’s weaker-than-expected US PPI report is dovish for Fed policy and bullish for precious metals.  Another bullish factor for precious metals was Thursday’s post-meeting statement from the ECB that it will soon begin cutting interest rates.  In addition, metals found support Thursday after the dollar index fell back from a 4-3/4 month high and turned lower.  Finally, precious metals have safe-haven support from Israel-Iran geopolitical risks.

On the bearish side for precious metals Thursday was higher global bond yields.  Also, hawkish comments from New York Fed President Williams, Richmond Fed President Barkin, and Boston Fed President Collins were negative for precious metals when they all said the Fed can take its time before cutting interest rates.

• Dollar Climbs on Higher Bond Yields and Weak Stocks
• Dollar Rallies and Gold Falls as US Price Pressures Seen Reducing Fed Rate Cuts
• Dollar Surges as a Hot US CPI Report Dampens Fed Rate Cut Expectations
• Dollar Recovers Early Losses as Stocks Falter