Dollar Slips on Lower Bond Yields and Strength in Stocks

Rich Asplund - Barchart - Mon May 13, 9:35AM CDT

The dollar index (DXY00) this morning is down by -0.17%. The dollar is under pressure today from lower T-note yields and strength in stocks, which reduces liquidity demand for the dollar. The dollar is also being undercut by uncertainty ahead of this week’s US inflation reports.

Today's hawkish comments from Fed Vice Chair Jefferson supported the dollar when he said, “In light of the attenuation in progress, in terms of getting inflation down to our target, it is appropriate that we maintain the policy rate in restrictive territory."

The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 32% for the following meeting on July 30-31.

EUR/USD (^EURUSD) today is up by +0.26% at a 1-week high. The euro is finding support today from a weaker dollar. The euro also garnered support today from a Bloomberg survey of analysts that raised their Eurozone 2024 GDP forecast to +0.7% from +0.45 last month.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 95% for its next meeting on June 6.

USD/JPY (^USDJPY) today is up +0.04%. The yen today fell to a 1-week low against the dollar and remains under pressure on speculation that Japanese authorities won’t intervene again in the forex market anytime soon to support the yen after Masato Kanda, Japan’s top currency official, said last Tuesday that the government doesn’t need to intervene in the forex market if market movements are orderly.

The yen recovered most of its losses today after a decline in T-note yields, which sparked some short covering in the yen. The yen also found support after the 10-year JGB bond yield rose to a 6-month high of 0.951% when the BOJ reduced the amount of its monthly bond purchases.

The BOJ today purchased 425 billion yen ($2.7 billion) of 5-to-10-year debt, compared with 475.5 billion yen it bought last month, the first reduction in its bond buying in 6 months.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 36% for the June 14 meeting.

June gold (GCM4) this morning is down -25.5 (-1.07%), and July silver (SIN24) is up +0.024 (+0.08%). Precious metals prices today are mixed. Hawkish comments today from Fed Vice Chair Jefferson weighed on gold prices when he said it is appropriate for the Fed to maintain interest rates in a restrictive range. Gold prices are also weighed down after the BOJ cut its monthly bond purchases for the first time in six months. Fund liquidation of gold holdings is negative for gold after long gold holdings in ETFs fell to a 4-1/2 year low last Friday.

Underlying bullish factors for metals include a weaker dollar, lower global bond yields, and safe-haven support from ongoing Middle East tensions. Silver has carryover support from today’s +1% rally in copper prices after China said it will start selling 1 trillion yuan ($138 billion) of special bonds to fund infrastructure spending, which should boost its industrial metals demand.

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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.