The dollar index (DXY00) today is down by -1.20% and tumbled to a 3-year low. The dollar is sharply lower today because of concerns that the escalation of the US-China trade war would derail the economy and lead to stagflation. China raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. 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 added to its losses today after the University of Michigan US Apr consumer sentiment index fell more than expected to a 2-3/4 year low. The dollar remained lower today even after US March producer prices unexpectedly eased, a dovish factor for Fed policy.
Hawkish comments today from Minneapolis Fed President Kashkari lifted the dollar off of its lows when he reiterated that the potential inflationary impact of tariffs makes the Fed less likely to lower interest rates, even in the face of a weakening economy.
St. Louis Fed President Musalem warned of stagflation in the US economy from tariffs, saying there's a near-term risk that inflation will rise while the labor market weakens.
US Mar PPI final demand unexpectedly eased to +2.7% y/y from +3.2% y/y in Feb, better than expectations of an increase to +3.3% y/y and the slowest pace of increase in 6 months. Mar PPI ex-food and energy also unexpectedly eased to +3.3% y/y from +3.6% y/y in Feb, better than expectations of an increase to +3.6% y/y.
The University of Michigan US Apr consumer sentiment index fell -6.2 to a 2-3/4 year low of 50.8, weaker than expectations of 53.5.
The University of Michigan US Apr 1-year inflation expectations jumped to 6.7%, higher than expectations of 5.2% and the highest since 1981. Also, Apr 5-10 year inflation expectations rose to 4.4%, higher than expectations of 4.3% and the highest since 1991.
The markets are discounting the chances at 32% 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 +1.54% and rallied to a 3-year high. The euro rallied sharply for a second session today due to a plunge in the dollar. The euro also has carryover support from Wednesday when President Trump paused reciprocal tariffs, which may keep the Eurozone economy from falling into recession and reduce expectations on how much the ECB needs to keep easing monetary policy.
Swaps are discounting the chances at 95% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) today is down by -0.96%. The yen is sharply higher today for a second session and rose to a 6-1/4 month high against the dollar. Escalation of the US-China trade war has boosted safe-haven demand for the yen after China raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. Also, today's nearly -3% slide in the Nikkei Stock Index has boosted safe-haven demand for the yen.
June gold (GCM25) today is up +73.60 (+2.32%), and May silver (SIK25) is up +0.926 (+3.01%). Precious metals today extended this week's rally, with June gold posting a contract high and nearest-futures (J25) gold climbing to a new all-time high of $3,231.00 an ounce. Today's selloff in the dollar to a 3-year low is a major bullish factor for precious metals. Also, the escalation of the US-China trade war is boosting safe-haven demand for precious metal after China today raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. 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 Thursday.
Hawkish comments today from Minneapolis Fed President Kashkari were bearish for precious metals when he reiterated that the potential inflationary impact of tariffs makes the Fed less likely to lower interest rates. Also, 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.
