The dollar index (DXY00) Monday rose by +0.19% and posted a 2-week high. The dollar moved higher on Monday on signs of strength in the economy after the Mar S&P Global Services PMI index and Feb Chicago Fed national activity index rose more than expected. Also, higher T-note yields on Monday strengthened the dollar’s interest rate differentials. The dollar added to its gains Monday afternoon on hawkish comments from Atlanta Fed President Bostic, who said he sees just one 25 bp rate cut by the Fed this year.
Gains in the dollar were limited on Monday after the Mar S&P Global manufacturing PMI unexpectedly contracted. Also, Monday’s rally in the S&P 500 to a 2-week high curbed liquidity demand for the dollar. In addition, the dollar is under pressure on reports that US reciprocal tariffs scheduled to be imposed on April 2 would be more targeted than widespread tariffs originally threatened, easing inflation concerns that could allow the Fed to keep cutting interest rates.
The US Feb Chicago Fed national activity index unexpectedly rose +0.26 to 0.18, stronger than expectations of a decline to -0.17.
The US Mar S&P Global manufacturing PMI fell -2.9 to 49.8, weaker than expectations of 51.7. However, the Mar S&P Global services PMI rose +3.3 to 54.3, stronger than expectations of no change at 51.0.
Atlanta Fed President Bostic said he sees just one 25 bp rate cut by the Fed this year “because I think we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target.”
The markets are discounting the chances at 16% for a -25 bp rate cut after the May 6-7 FOMC meeting.
EUR/USD (^EURUSD) Monday fell by -0.14% and posted a 2-week low. The euro was under pressure Monday on dovish comments from ECB Executive Board member Cipollone, who said the ECB’s case to keep cutting interest rates has strengthened since its last decision earlier this month. Losses in the euro were contained on signs of economic strength after the Eurozone Mar S&P manufacturing PMI rose more than expected to a 2-year high.
The Eurozone Mar S&P manufacturing PMI rose +1.1 to a 2-year high of 48.7, stronger than expectations of 48.2.
Swaps are discounting the chances at 65% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Monday rose by +0.82%. The yen retreated on Monday and posted a 3-week low against the dollar on a sign of weakness in the Japanese economy after the Japan Mar Jibun Bank manufacturing PMI contracted at the steepest pace in a year. Also, Monday’s jump in T-note yields was bearish for the yen. In addition, Monday’s sharp rally in stocks reduced the safe-haven demand for the yen. Losses in the yen were limited after BOJ Governor Ueda said the BOJ will keep raising interest rates if its economic outlook is realized.
The Japan Mar Jibun Bank manufacturing PMI fell -0.7 to 48.3, the steepest pace of contraction in a year.
BOJ Governor Ueda said the BOJ will adjust its degree of monetary easing if its economic outlook for achieving its price target is realized.
April gold (GCJ25) Monday closed down -5.80 (-0.19%), and May silver (SIK25) closed down -0.036 (-0.11%). Precious metals on Monday gave up an early advance and posted modest losses. Long liquidation emerged in precious metals Monday after the dollar index rallied to a 2-week high. Also, higher T-note yields on Monday and the rally in the S&P 500 to a 2-week high weighed on precious metals. In addition, hawkish central bank comments undercut precious metals after Atlanta Fed President Bostic said he sees just one 25 bp rate cut by the Fed this year, and BOJ Governor Ueda said the BOJ will keep raising interest rates if its economic outlook is realized.
On Monday, precious metals initially moved higher after reports said US reciprocal tariffs scheduled for April 2 would be more targeted than previously expected, which eased concerns about inflation and could allow the Fed to keep cutting interest rates, a dovish factor for precious metals demand. Dovish comments Monday from ECB Executive Board member Cipollone boosted demand for precious metals as a store of value when he said the ECB’s case to keep cutting interest rates has strengthened since its last decision earlier this month. Ramped-up geopolitical risks in the Middle East are also boosting safe-haven demand for precious metals as Israel continues airstrikes across Gaza, ending a two-month ceasefire with Hamas, and as the US continues to launch strikes on Yemen’s Houthi rebels. In addition, fund buying of gold supports prices after long gold positions in ETFs rose to a 17-month high last Friday.
