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Dollar Climbs as T-Note Yields Rise and Stocks Fall

Barchart - Thu Apr 18, 2:43PM CDT

The dollar index (DXY00) Thursday rose by +0.16%.  The dollar recovered from early losses and moved higher Thursday after T-note yields climbed on signs of strength in the US economy when weekly jobless claims were unchanged.  Also, the April Philadelphia Fed business outlook survey unexpectedly rose to a 2-year high.  Weakness in stocks Thursday boosted liquidity demand for the dollar.  The dollar extended its gains based on hawkish comments from NY Fed President Williams and Atlanta Fed President Bostic, who both reiterated the recent theme that the Fed is in no hurry to cut interest rates.

US weekly initial unemployment claims were unchanged at 212,000, showing a stronger labor market than expectations of an increase to 215,000.

The US Apr Philadelphia Fed business outlook survey unexpectedly rose +12.3 to a 2-year high of 15.5 versus expectations of a decline to 2.0.

US Mar existing home sales fell -4.3% m/m to 4.19 million, slightly weaker than expectations of 4.20 million.

US Mar leading indicators fell -0.3% m/m, weaker than expectations of -0.1% m/m.

NY Fed President Williams said there's "no urgency" to cut interest rates, and economic data will determine the timing of rate cuts.

Atlanta Fed President Bostic said "inflation is too high" and he doesn't think it will be appropriate to lower borrowing costs until toward the end of the 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 16% for the following meeting on June 11-12.

EUR/USD (^EURUSD) Thursday fell by -0.28%.  The euro Thursday gave up an early advance and turned lower on long liquidation as the dollar recovered.  EUR/USD was also under pressure from Thursday’s economic news that showed Eurozone Mar new car registrations fell by the most in 20 months. EUR/USD extended its losses on dovish comments from ECB Governing Council members Holzman and Rehn who said the ECB will begin cutting interest rates in June.  The euro initially moved higher Thursday after the Bundesbank upgraded its assessment of the German economy in the first quarter.

Eurozone Mar new car registrations fell -5.2% y/y, the biggest decline in 20 months.

Eurozone Feb construction output rose +1.8% m/m, the biggest increase in a year.

In its monthly report, the Bundesbank upgraded its assessment of the German economy and said the German economy in Q1 may have seen a "slight increase" in growth, an improvement from March when they projected the economy contracted in Q1.

ECB Executive Board member de Guindos said that if confidence grows among ECB officials about meeting the 2% inflation target, then "it would be appropriate to reduce the current level of monetary policy restriction."

ECB Governing Council member Rehn said, "Provided that we are confident that inflation will continue converging to our 2% target in a sustained way, the time will be ripe in June for the ECB to start easing the monetary stance and to cut rates." 

ECB Governing Council member Holzmann said there will likely be a majority for an ECB rate cut in June.

Swaps are discounting the chances for a -25 bp rate cut by the ECB at 83% for its next meeting on June 6.

USD/JPY (^USDJPY) Thursday rose by +0.13%.  The yen Thursday posted modest losses on dovish comments from BOJ member Noguchi who said there's still some distance to go before achieving the BOJ's 2% inflation target.  Higher T-note yields Thursday also undercut the yen. 

Losses in the yen are limited after the BOJ's semiannual Financial System report said Japanese corporate financial conditions have been improving.  Also, the market is wary of intervention in the forex market to support the yen after the US, Japan, and South Korea issued a trilateral statement acknowledging the serious concerns that Japan and South Korea have about the recent weakness in their respective currencies.

The Japan Feb tertiary industry index rose +1.5% m/m, stronger than expectations of +0.5% m/m and the largest increase in 2-1/2 years.

In a trilateral statement, the US, Japan, and South Korea said they would continue to consult closely on foreign exchange market developments while acknowledging Japan's and Korea's serious concerns about the recent sharp depreciation in their currencies.

The BOJ, in its semiannual Financial System report, said corporate financial conditions have been improving, and firms as a whole are fairly resilient to stress.  Many Japanese companies have sufficient profitability to withstand rising interest rates.

BOJ member Noguchi said there's still some distance to go before achieving the BOJ's 2% inflation target.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1% for the April 26 meeting and 39% for the following meeting on June 14.

June gold (GCM4) on Thursday closed up +9.60 (+0.40%), and May silver (SIK24) closed down -0.020 (-0.07%).  Precious metals Thursday settled mixed.  Thursday’s fall in the S&P 500 to a 1-3/4 month low boosted safe-haven demand for precious metals.  Also, concern about escalating geopolitical tensions in the Middle East continued to support safe-haven demand for precious metals.  Silver had carryover support from Thursday’s rally in copper prices to a 1-3/4 year high.

Strength in the dollar Thursday and higher T-note yields were bearish for precious metals.  Also, Thursday’s US unemployment claims and Philadelphia Fed reports signaled strength in the economy that was hawkish for Fed policy. In addition, hawkish Fed comments undercut precious metals prices when NY Fed President Williams and Atlanta Fed President Bostic said the Fed could take its time before lowering borrowing costs.  



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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.

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