The dollar index (DXY00) Monday fell by -0.98% and posted a new 3-year low. The dollar sold off Monday on a renewed crisis of confidence in the dollar after National Economic Council Director Hassett said President Trump was contemplating the possibility of firing Fed Chair Powell. The firing of Powell would question the independence of the Fed and further reduce confidence in the dollar, which is already under pressure from President Trump’s aggressive trade tariffs that have prompted foreign investors to liquidate their dollar assets. The dollar maintained its losses after US Mar leading indicators posted their largest decline in 17 months.
US Mar leading indicators fell -0.7% m/m, weaker than expectations of -0.5% m/m and the largest decline in 17 months.
This week’s market focus will be on any changes to US trade policies. On Wednesday, March new home sales are expected to climb +0.7% m/m to 681,000. The Fed Beige Book will also be released on Wednesday. Thursday brings March capital goods new orders nondefense ex-aircraft and parts (expected +0.1% m/m). Also, March existing home sales on Thursday are expected to fall -2.8% m/m to 4.14 million. Friday brings the revised University of Michigan April consumer sentiment index (expected no change at 50.8).
The markets are discounting the chances at 16% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) Monday rose by +1.11% and posted a 3-1/3 year high. Monday’s plunge in the dollar was bullish for the euro. Also, Monday’s hawkish comments from ECB Governing Council member Muller boosted the euro when he warned that US trade tariffs and higher public spending in Germany could stoke inflation. Moves in EUR/USD may have been exaggerated Monday, with trading activity well below average as most European markets were closed for the Easter Monday holiday.
Swaps are discounting the chances at 92% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Monday fell by -1.05%. The yen rallied to a 7-month high against the dollar on Monday as a confidence crisis in the dollar sparked safe-haven buying of the yen. The dollar is sinking on questions about the Fed’s independence with President Trump seeking to fire Fed Chair Powell. The yen also has support from a Bloomberg report that said BOJ policymakers see little need to change their existing stance of gradually raising interest rates. The plunge in equity markets on Monday also boosted safe-haven demand for the yen.
A report from Bloomberg said BOJ officials see little need to change their existing stance of gradually raising interest rates for now despite uncertainties stemming from US tariffs.
June gold (GCM25) Monday closed up +96.90 (+2.91%), and May silver (SIK25) closed up +0.051 (+0.16%). Precious metals prices rose on Monday, with June gold soaring to a contract high and nearest-futures (J25) gold posting a new record high of $3,418.50 an ounce. Monday’s slump in the dollar index to a 3-year low is a major bullish factor for precious metals. Also, a crisis of confidence in the dollar has boosted demand for precious metals as a store of value, with President Trump threatening to fire Fed Chair Powell. In addition, the ongoing US-China trade war is fueling safe-haven demand for precious metals. Finally, 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 continues strikes on Yemen’s Houthi rebels.
Higher T-note yields on Monday are bearish for precious metals. Also, Monday’s report from Bloomberg said BOJ policymakers see little need to change their existing stance of gradually raising interest rates, which is negative for precious metals. Gains in silver were limited due to concerns that the ongoing US-China trade war would slow economic growth and demand for industrial metals.
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.
