The dollar index (DXY00) Wednesday fell by -0.92%. The dollar was under pressure Wednesday as the tit-for-tat trade war with China erodes confidence in the dollar after the US government barred Nvidia from selling its H20 chips to China. The US tariff turmoil diminishes the dollar’s reserve-currency status and has prompted some foreign investors to liquidate their dollar assets. Losses in the dollar accelerated Wednesday after the WTO slashed its 2025 global trade estimate.
US Mar retail sales rose +1.4% m/m, right on expectations and Mar retail sales ex-autos rose +0.5% m/m, stronger than expectations of +0.4% m/m.
US Mar manufacturing production rose +0.3% m/m, stronger than expectations of +0.2% m/m.
The US Apr NAHB housing market index unexpectedly rose +1 to 40, stronger than expectations of a decline to 38.
The World Trade Organization (WTO) cut its 2025 global trade forecast to a -0.2% decline from a November forecast of up +3.0% and warned if the US pushes ahead with reciprocal tariffs, global trade will contract -1.5% this year.
Cleveland Fed President Hammack said a “modestly restrictive” policy stance is appropriate, and there is a “strong case” for the Fed to hold interest rates steady to balance risks.
Fed Chair Powell said the Trump administration’s tariffs are even higher than the Fed’s upside scenario, and the US economy will likely be “moving away” from both of the Fed’s goals of full employment and stable prices for “probably for the balance of this year.” He added, “For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance.”
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) Wednesday rose by +1.05%. The euro rallied moderately on Wednesday due to weakness in the dollar. Further gains in the euro may be limited by reports that the EU and US had made little progress in bridging trade differences. Also, expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting are bearish for the euro.
Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) Wednesday fell by -0.91%. The yen rallied to a 6-1/2 month high against the dollar Wednesday as the tit-for-tat US-China trade war boosts safe-haven demand for the yen after the US government banned Nvidia from selling its H20 chips to China. The yen also garnered support from Wednesday’s Japanese economic news, which showed that Feb core machine orders rose by the most in a year. Gains in the yen accelerated Wednesday after the plunge in stocks fueled safe-haven demand for the yen.
Gains in the yen are limited after Reuters reported that the BOJ will lower its economic growth forecast for the year at the April 30-May 1 policy meeting. Also, comments from BOJ Governor Ueda today weighed on the yen when he said the US tariff policy has brought a “bad scenario” to the Japanese economy.
Japan Feb core machine orders rose +4.3% m/m, stronger than expectations of +1.2% m/m and the biggest increase in a year.
Reuters reported that the BOJ is set to cut its economic growth forecasts for the current fiscal year at its April 30-May 1 policy meeting.
BOJ Governor Ueda said US tariffs have brought a “bad scenario” to the Japanese economy that could force the BOJ to make a policy response.
June gold (GCM25) Wednesday closed up +106.00 (+3.27%), and May silver (SIK25) closed up +0.683 (+2.11%). Precious metals on Wednesday rallied sharply, with June gold posting a contract high and nearest-futures (J25) gold posting a new record high of $3,332.10 an ounce. Silver prices also rose to a 1-1/2 week high. Wednesday’s dollar weakness is bullish for metals. Also, Wednesday’s stock plunge sparked safe-haven demand for precious metals.
The escalation of the US-China trade war is also boosting safe-haven demand for precious metals after the US government barred Nvidia from selling its H20 chips to China, and President Trump said he is launching an investigation into the need for tariffs on critical minerals. Precious metals have support as a store of value on expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting. 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. Fund buying of gold supports prices after long gold positions in ETFs rose to a 1-1/2 year high Tuesday.
