The dollar index (DXY00) on Monday rose by +0.16% and posted a 5-1/4 month high.  The dollar gave up overnight losses Monday and moved higher as the 10-year T-note yield jumped to a 5-month high after US March retail sales rose more than expected, a hawkish factor for Fed policy.  Also, the failure of stocks to hold an early rally as they turned lower Monday afternoon sparked some liquidity demand for the dollar.

The dollar on Monday initially moved lower on reduced liquidity demand as stocks rallied after geopolitical concerns eased on hopes diplomatic efforts will contain the conflict between Iran and Israel.  Also, dovish comments from New York Fed President Williams undercut the dollar when he said he expects the Fed to start cutting interest rates this year. 

US Mar retail sales rose +0.7% m/m, stronger than expectations of +0.4% m/m.  Also, Mar retail sales ex-autos rose +1.1% m/m, stronger than expectations of +0.5% m/m and the biggest increase in 14 months.

The US Apr Empire manufacturing survey general business conditions rose +6.6 to -14.3, weaker than expectations of -5.2.

US Feb business inventories rose +0.4% m/m, right on expectations.

The US Apr NAHB housing market index was unchanged at 51, right on expectations.

NY Fed President Williams said, "We will need to start a process at some point to bring interest rates back to more normal levels, and my own view is that process will likely start this year."

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 24% for the following meeting on June 11-12.

EUR/USD (^EURUSD) on Monday fell by -0.17% and posted a 5-1/4 month low.  The euro gave up an early advance and turned lower Monday after several ECB members today expressed their support for an ECB interest rate cut in June.   The euro on Monday initially moved higher after Eurozone Feb industrial production rose as expected.  Also, comments from ECB Governing Council member Kazimir boosted the euro when he said an economic recovery in the Eurozone is taking hold. 

Eurozone Feb industrial production rose +0.8% m/m, right on expectations.

ECB Governing Council member Kazimir said an economic recovery in the Eurozone is taking hold and will quicken in the second half of this year.  He added that inflation shows signs of a sustained retreat and is opening the door for the first ECB rate cut in June.

ECB Governing Council member Simkus said he sees three ECB rate cuts this year with a "higher than 50% chance" of a fourth rate cut.

ECB Governing Council member Villeroy de Galhau said, "Bar a surprise, the ECB should decide on the first rate cut at its next meeting on June 6."

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 90% for its next meeting on June 6 and fully priced in (+142%) that rate cut for the following meeting on July 18.

USD/JPY (^USDJPY) on Monday rose by +0.64%.  The yen on Monday tumbled to a new 33-year low against the dollar.  The yen is under pressure from a Reuters report on Monday that said BOJ members are wary of phasing out stimulus too soon and may not be ready to raise interest rates even if inflation forecasts are upgraded.  The yen extended its losses Monday after the 10-year T-note yield jumped to a 5-month high.  A positive factor for the yen was Monday’s report on Japan Feb core machine orders, which posted its biggest increase in 13 months.

A Reuters report said that many BOJ members are wary of phasing out stimulus too soon, and "even if inflation forecasts are upgraded, that alone won't trigger a policy shift." 

Japan Feb core machine orders rose +7.7% m/m, stronger than expectations of +0.8% m/m and the largest increase in 13 months.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 29% for the following meeting on June 14.

June gold (GCM4) on Monday closed up +8.9 (+0.37%), and May silver (SIK24) closed up +0.387 (+1.37%).  Precious metals Monday recovered from early losses and closed moderately higher. Precious metals erased early losses and moved higher on increased safe-haven demand after Axios reported that Israeli Defense Minister Gallant said that Israel had no choice but to retaliate against Iran for its weekend drone and missile attack against Israel. Also, Monday’s decline in the S&P 500 to a 1-1/4 month low sparked safe-haven demand for precious metals.

Precious metals garnered support Monday as a store of value on dovish central bank comments.  New York Fed President Williams said he expected Fed rate cuts to begin this year, and several ECB members today expressed their support for ECB interest rate cuts to begin in June.  Silver has carryover support from today’s rally in copper prices to a 1-3/4 year high.  Also, supply concerns have given silver prices a boost since the US and UK imposed new restrictions on trading Russian aluminum, copper, and nickel.

Gold and silver prices on Monday initially moved lower due to reduced safe-haven demand as geopolitical tensions eased in hopes that diplomatic efforts would contain the Iran-Israel conflict.  Also, Monday’s rally in the dollar index to a 5-1/4 month high was negative for metals. In addition, higher global bond yields on Monday were bearish for precious metals. 

• Dollar Gains as Bond Yields Jump on Strength in US Retail Sales
• Dollar Rallies on Fed Divergence and Heightened Geopolitical Risks
• Stocks Fall on Heightened Geopolitical Risks in the Middle East
• Dollar Soars on Fed Divergence and Increased Liquidity Demand as Stocks Fall