The dollar index (DXY00) today is down by -0.31%. The dollar is under pressure today from strength in stocks, which reduces liquidity demand for the dollar. Also, strength in the euro today is weighing on the dollar after hawkish comments from ECB Executive Board member Schnabel boosted the euro. Today’s reports on US Apr capital goods new orders nondefense ex-aircraft and parts and the University of Michigan US May consumer sentiment were better than expected and supportive for the dollar.
US Apr capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.3% m/m, stronger than expectations of +0.1% m/m.
The University of Michigan US May consumer sentiment index was revised upward to 69.1 from the previously reported 67.4, stronger than expectations of 67.7
The University of Michigan US May 1-year inflation expectations were revised down to 3.3% from the previously reported 3.5%, weaker than expectations of 3.4%. Also, May 5-10-year inflation expectations were revised downward to 3.0% from the previously reported 3.1%.
Fed Governor Waller said, "The US is on an unsustainable fiscal path. If the growth in the supply of US Treasuries begins to outstrip demand, then this will mean lower prices and higher yields, which will put pressure on the neutral rate."
The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 12% for the following meeting on July 30-31.
EUR/USD (^EURUSD) today is up by +0.31%. The euro today is moving moderately higher due to weakness in the dollar. Also, hawkish comments today from ECB Executive Board member Schnabel boosted the euro when she said the ECB shouldn't rapidly lower borrowing costs. Today’s jump in the 10-year German bund yield to a 4-week high strengthened the euro’s interest rate differentials and supported EUR/USD.
ECB Executive Board member Schnabel said the ECB shouldn't lower borrowing costs too rapidly as some elements of inflation "are proving persistent, especially domestic inflation and services in particular."
ECB Governing Council member and Bundesbank President Nagel said he's confident that wage growth will slow in coming months and the likelihood of a June rate cut by the ECB is "winning traction."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 88% for its next meeting on June 6.
USD/JPY (^USDJPY) today is up +0.04%. The yen today is slightly weaker but remains above Thursday’s 3-week low against the dollar. An increase in T-note yields today is undercutting the yen. However, losses in the yen are limited after today’s economic news showed Japan’s Apr national CPI remained above 2%, a hawkish factor for BOJ policy.
Japan's Apr national CPI eased to +2.5% y/y from +2.7% y/y in March, stronger than expectations of +2.4% y/y. Apr national CPI ex-fresh food and energy eased to +2.4% y/y from +2.9% y/y in March, right on expectations and the slowest pace of increase in 1-1/2 years.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 27% for the June 14 meeting.
June gold (GCM4) today is up +3.8 (+0.16%), and July silver (SIN24) is up +0.175 (+0.57%). Precious metals prices today recovered from early losses and are slightly higher. A weaker dollar today is bullish for metals. Silver also found some support in today’s better-than-expected report on US Apr capital goods new orders nondefense ex-aircraft and parts, a positive factor for industrial metals demand.
Limiting gains in precious metals today are higher global bond yields. Also, hawkish comments today from ECB Executive Board member Schnabel weighed on gold when she said the ECB shouldn't lower borrowing costs too rapidly.
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.
