The dollar index (DXY00) today is down by -1.40%. The dollar is sliding today on concern the escalation of the US-China trade war will derail the economy and lead to stagflation. The US raised tariffs on China Wednesday to 125% from 104% after China retaliated and imposed 84% tariffs on US goods. The dollar is also facing a confidence crisis as the US renegotiates its relationships with its trading partners, diminishing its reserve-currency status and prompting some foreign investors to liquidate their dollar assets. The dollar extended its losses today after US March consumer prices rose less than expected, a dovish factor for Fed policy.
US weekly initial unemployment claims rose +4,000 to 223,000, right on expectations. Weekly continuing claims fell -43,000 to 1.850 million, showing a stronger labor market than expectations of 1.886 million.
US Mar CPI rose +2.4% y/y, weaker than expectations of +2.5% y/y and the smallest increase in 6 months. Mar CPI ex-food and energy rose +2.8% y/y, weaker than expectations of +3.0% y/y and the smallest increase in 4 years.
Kansas City Fed President Schmid said he would “prioritize reining in inflation” if the Fed is forced to balance its price stability goal against its mandate for full employment.
Dallas Fed President Logan said, “To sustainably achieve both of our dual-mandate goals, it will be important to keep any tariff-related price increases from fostering more persistent inflation.”
The markets are discounting the chances at 25% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) today is up by +1.66%. Today’s slump in the dollar is boosting the euro. The euro also garnered support from President Trump’s actions to pause reciprocal tariffs, which may keep the Eurozone economy from falling into recession and reduced expectations on how much the ECB needs to keep easing monetary policy.
Swaps are discounting the chances at 93% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) today is down by -1.95%. The yen is sharply higher today after Japanese producer prices rose more than expected in March, a hawkish factor for BOJ policy. Also, lower T-note yields today are supportive of the yen. In addition, demand for the yen as a safe haven has increased due to the escalation of the US-China trade war.
Japan’s Mar PPI rose +0.4% m/m and +4.2% y/y, stronger than expectations of +0.2% m/m and +3.9% y/y.
June gold (GCM25) today is up +75.20 (+2.44%), and May silver (SIK25) is up +0.365 (+1.20%). Precious metals today are sharply higher due to a slumping dollar. Also, today’s sharp decline in stocks and lower T-note yields are bullish for precious metals. The escalation of the US-China trade rift has also boosted safe-haven demand for precious metals. In addition, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals after the Israel-Hamas ceasefire broke down and as the US threatened more strikes on Yemen’s Houthi rebels. Fund buying of gold supports prices after long gold positions in ETFs rose to a 1-1/2 year high Wednesday. Gains in silver prices are limited by concern that an escalation of the trade war could derail the global economy and the demand for industrial metals.
