The dollar index (DXY00) today is down by -0.67%. The dollar is sliding today as the US-China trade rift widened after China today imposed 84% tariffs on US goods in retaliation for the US imposing a total of 104% tariffs on Chinese goods. Also, the dollar is 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 recovered from its worst level on hawkish comments from Minneapolis Fed President Kashkari, who said there is a higher bar for Fed rate cuts due to the inflationary impact of tariffs.
Minneapolis Fed President Kashkari said, "The hurdle to change the federal funds rate one way or the other has increased due to tariffs," and that the Fed is less likely to lower interest rates in the face of tariffs given their inflationary impact, even if the economy begins to deteriorate.
The markets are discounting the chances at 48% for a -25 bp rate cut after the May 6-7 FOMC meeting, up from a 30% chance last week.
EUR/USD (^EURUSD) today is up by +0.81%. The euro is climbing today as losses in the dollar deepen as the US-China trade war escalates. Also, hawkish comments today from ECB Governing Council Holzmann boosted the euro when he said, "I don't see reason for the ECB to cut interest rates now." However, other ECB members were more dovish, with ECB Governing Council members Villeroy de Galhau and Rehn saying that the ECB should cut interest rates at next week's policy meeting.
ECB Governing Council member Holzmann said the ECB should allow uncertainty on global trade stoked by US tariffs to clear before considering any further interest rate cuts.
ECB Governing Council member Villeroy de Galhau said the ECB should lower interest rates "soon" as US tariffs and the fallout on global markets favor such a move.
ECB Governing Council member Rehn said, "The grounds for continuing interest rate cuts in the April meeting have grown clearly stronger based on a holistic assessment of inflation and economic growth."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) today is down by -0.92%. The yen today extended Tuesday's advance to a 6-1/4 month high against the dollar. The escalation of the US-China trade war has sparked safe-haven demand for the yen after China today retaliated against US tariffs with 84% tariffs on US goods. The yen is moving higher today despite a fall in the Japan Mar consumer confidence index to a 2-year low and comments from BOJ Governor Ueda, who signaled the BOJ is keeping interest rates unchanged in the near term.
The Japan Mar consumer confidence index fell -0.7 to a 2-year low of 34.1, weaker than expectations of 34.8.
BOJ Governor Ueda signaled the BOJ is keeping interest rates unchanged in the near term when he said, "Our stance is to conduct our policy appropriately by carefully assessing the remaining uncertainties surrounding tariffs and monitoring the economy, inflation, and financial markets as we shape our outlook."
June gold (GCM25) today is up +101.00 (+3.38%), and May silver (SIK25) is up +0.664 (+2.24%). Precious metals are soaring today due to a weak dollar and the escalation of the US-China trade rift. China retaliated against new US tariffs today by imposing 84% tariffs on US goods, which fueled heavy demand for the safety of precious metals. Also, dovish comments today from ECB Governing Council members Villeroy de Galhau and Rehn boosted demand for precious metals as a store of value when they said the ECB should cut interest rates at next week's policy meeting. In addition, today's slump in global equity markets is boosting safe-haven demand for precious metals. Finally, geopolitical risks in the Middle East are 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.
Higher T-note yields today are negative for precious metals. Also, hawkish central comments today were bearish for precious metals. ECB Governing Council Holzmann said, "I don't see a reason for the ECB to cut interest rates now," and Minneapolis Fed President Kashkari said there is a higher bar for Fed rate cuts due to the inflationary impact of tariffs. In addition, 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.
