The dollar index (DXY00) Wednesday rose by +0.28% and posted a 1-week high. Higher T-note yields Wednesday supported moderate gains in the dollar. Also, the weakness in stocks on Wednesday boosted some liquidity demand for the dollar. The dollar extended its gains Wednesday afternoon on the hawkish minutes of the Apr 30-May 1 FOMC meeting.
A negative factor for the dollar Wednesday was the unexpected decline in US Apr existing home sales. Also, Wednesday’s rally in the British pound (^GBPUSD) to a 2-month high was negative for the dollar.
US Apr existing home sales unexpectedly fell -1.9% m/m to 4.14 million, versus expectations of an increase to 4.23 million.
The minutes of the Apr 30-May 1 FOMC meeting stated, "Participants noted disappointing readings on inflation over the first quarter" and discussed "holding interest rates steady for longer. " The minutes also said "many" questioned whether policy was restrictive enough to bring inflation down to target, with "various" participants willing to tighten more if needed.
The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 21% for the following meeting on July 30-31.
EUR/USD (^EURUSD) Wednesday fell by -0.33% and posted a 1-week low. A stronger dollar on Wednesday weighed on the euro. Also, dovish comments from ECB President Lagarde undercut the euro Wednesday when she said there's a "strong likelihood" of an ECB interest rate cut on June 6.
Limiting losses in the euro was Wednesday’s monthly report from the Bundesbank that showed negotiated Q1 pay raises in Germany rose +6.2%, well above expectations of +4.8%, which pushed bund yields higher and is a hawkish factor for ECB policy.
Eurozone Apr new car registrations rose +13.7% y/y to 914,000, the largest increase in 6 months.
In its monthly report Wednesday, the Bundesbank reported negotiated Q1 pay raises in Germany rose +6.2%, well above expectations of +4.8%. The Bundesbank said, " As a result, still-high price pressure on services could persist for longer.”
ECB President Lagarde said there's a "strong likelihood" of an ECB interest rate cut on June 6, saying, "I'm really confident that we have inflation under control.
ECB Governing Council member and Bundesbank President Nagel said, "Even if rates are lowered by the ECB for the first time in June, that does not mean we will cut rates further" in subsequent meetings.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for its next meeting on June 6.
USD/JPY (^USDJPY) Wednesday rose by +0.33%. The yen fell to a 1-week low against the dollar Wednesday due to strength in T-note yields. Also, Wednesday's weaker than expected Japanese trade news was bearish for the yen. On the positive side for the yen was Wednesday’s report on Japan Mar core machine orders that unexpectedly increased.
Japanese trade data was weaker than expected as Apr exports rose +8.3% y/y, below expectations of +11.0% y/y. Also, Apr imports rose +8.3% y/y, below expectations of +8.9% y/y.
Japan Mar core machine orders unexpectedly rose +2.9% m/m versus expectations of a -2.0% m/m decline.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 28% for the June 14 meeting.
June gold (GCM4) Wednesday closed down -33.0 (-1.36%), and July silver (SIN24) closed down -0.582 (-1.81%). Precious metals prices on Wednesday settled moderately lower. Wednesday’s rally in the dollar index to a 1-week high was bearish for metals prices. Also, higher global bond yields on Wednesday weighed on precious metals. Silver prices came under added pressure after US Apr existing home sales unexpectedly declined, a negative factor for industrial metals demand. Gold prices fell more than -$10 an ounce from their Wednesday afternoon closing level on the hawkish minutes of the April 30-May 1 FOMC meeting.
Dovish comments Wednesday from ECB President Lagarde supported gold demand as a store of value when she said there's a "strong likelihood" of an ECB interest rate cut on June 6. Wednesday’s economic reports showed higher than expected UK Apr CPI and stronger than expected German Q1 wages, which also boosted demand for gold as a hedge against inflation.
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.
