The dollar index (DXY00) Monday rose by +0.12%. Higher T-note yields Monday supported moderate gains in the dollar. Also, hawkish comments from several Fed presidents were bullish for the dollar. However, the upside in the dollar was contained as Monday’s rally in stocks curbed liquidity demand for the dollar.
Cleveland Fed President Mester said she doesn't think inflation will come down quickly and doesn't believe three rate cuts in 2024 are still appropriate.
San Francisco Fed President Daly said she's "not yet confident" inflation is coming down sustainably to 2%.
Fed Vice Chair Jefferson said the US April inflation data were "encouraging," but "it is too early to tell whether the recent slowdown in the disinflationary process will be long lasting."
Atlanta Fed President Bostic said "nothing has changed" regarding his view that maybe only one rate cut will be appropriate in 2024.
The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 25% for the following meeting on July 30-31.
EUR/USD (^EURUSD) Monday fell by -0.06%. The euro was under pressure Monday from a stronger dollar. Also, central bank divergence is weighing on the euro, with the ECB expected to cut interest rates next month while the Fed delays rate cuts. Losses in the euro are limited by hawkish comments from ECB Governing Council member Kazaks, who warned against hasty interest rate cuts by the ECB after June.
ECB Governing Council member Kazaks said, "June seems the right moment to start lowering borrowing costs, but incoming data best determine decisions on any subsequent steps."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for its next meeting on June 6.
USD/JPY (^USDJPY) Monday rose by +0.40%. Weaker-than-expected Japanese economic news on Monday undercut the yen after the Japan Mar tertiary index posted its steepest decline in 3-3/4 years. The yen added to its losses Monday as T-note yields rose. A supportive factor for the yen was Monday’s increase in the 10-year JGB bond yield to an 11-year high of 0.981%, strengthening the yen’s interest rate differentials.
The Japan Mar tertiary index fell -2.4% m/m, weaker than expectations of -0.1% m/m and the biggest decline in 3-3/4 years.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 26% for the June 14 meeting.
June gold (GCM4) Monday closed up +21.1 (+0.87%), and July silver (SIN24) closed up +1.167 (+3.73%). Precious metals prices rallied Monday, with Jun gold posting a contact high and spot gold (K24) posting a record high. Also, July silver posted a contract high, and spot silver (K24) posted an 11-year high.
Geopolitical uncertainty in Iran has added to turmoil in the Middle East and boosted safe-haven demand for gold Monday after a helicopter crash killed Iranian President Raisi. Silver has carryover support from today’s rally in copper prices to an all-time high.
On the negative side for metals on Monday was a stronger dollar. Also, higher global bond yields on Monday were bearish for precious metals. In addition, hawkish central comments on Monday were negative for precious metals. ECB Governing Council member Kazaks warned against hasty interest rate cuts by the ECB after its June policy meeting. Also, San Francisco Fed President Daly, Atlanta Fed President Bostic, Cleveland Fed President Mester, and Fed Vice Chair Jefferson all said they favored maintaining the current restrictive Fed policy until inflation comes down sustainably to 2%.
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.
