Dollar Retreats as Bond Yields Fall and Stocks Rally
The dollar index (DXY00) Tuesday fell to a 1-week low and finished down by -0.37%. The dollar was under pressure from strength in the euro after Tuesday’s news showed the Eurozone Apr S&P composite PMI expanded by the most in 11 months. Strength in stocks Tuesday also curbed liquidity demand for the dollar. The dollar extended its losses after Tuesday’s US Apr manufacturing PMI report unexpectedly contracted.
The US Apr S&P manufacturing PMI unexpectedly fell -2.0 to a 4-month low of 49.9 versus expectations of an increase to 52.0.
US Mar new home sales rose +8.8% m/m to a 6-month high of 693,000, stronger than expectations of 668,000.
The US Apr Richmond Fed manufacturing survey rose +4 to -7, stronger than expectations of -8.
The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 19% for the following meeting on June 11-12.
EUR/USD (^EURUSD) Tuesday rallied to a 1-week high and finished up by +0.47%. The euro moved higher Tuesday on positive economic news that showed the Eurozone Apr S&P composite PMI climbing more than expected to an 11-month high. The euro extended its gains after the dollar tumbled on weak US manufacturing news.
Gains in the euro were limited after the Eurozone Apr manufacturing PMI unexpectedly declined. Also, dovish comments from ECB Vice President de Guindos and ECB Governing Council member Nagel weighed on the euro when they said they expected the ECB to start cutting interest rates in June.
The Eurozone Apr S&P manufacturing PMI unexpectedly fell -0.5 to 45.6, weaker than expectations of an increase to 46.5. The Apr composite PMI rose +1.1 to 51.4, stronger than expectations of 50.7 and the strongest pace of expansion in 11 months.
ECB Vice President de Guindos said, "If things move in the same direction as they have in recent weeks, the ECB will loosen its restrictive monetary policy stance in June."
ECB Governing Council member and Bundesbank President Nagel said, "If the favorable inflation outlook from March is confirmed in the June forecast and the incoming data supports the forecast, the ECB can consider lowering interest rates."
Swaps are discounting the chances for a -25 bp rate cut by the ECB at 85% for its next meeting on June 6.
USD/JPY (^USDJPY) Tuesday fell by -0.03%. The yen Tuesday recovered from a new 33-year low against the dollar and posted modest gains. Short covering in the yen emerged Tuesday based on comments from Japanese Finance Minister Suzuki, who said the environment is in place to intervene in the forex market if needed. The yen also garnered support from Tuesday’s economic news that showed the Japan Apr Jibun Bank manufacturing PMI rose to an 11-month high. The yen extended its gains Tuesday after T-note yields turned lower.
BOJ Governor Ueda said, "If the price trend rises toward 2% in line with our outlook, we will adjust the degree of monetary easing, and, in that case, it will mean raising short-term interest rates."
The Japan Apr Jibun Bank manufacturing PMI rose +1.7 to an 11-month high of 49.9.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 12% for the April 26 meeting and 37% for the following meeting on June 14.
June gold (GCM4) Tuesday closed down -4.3 (-0.18%), and May silver (SIK24) closed up +0.117 (+0.43%). Precious metals settled mixed on Tuesday, with gold falling to a 2-week low. Precious metals are under pressure on reduced safe-haven demand as geopolitical tensions eased in the Middle East due to the absence of further escalation from Iran following Israel’s retaliatory strike last Friday. Also, Tuesday’s stock rally has curbed safe-haven demand for precious metals.
On the positive side, Tuesday’s decline in the dollar index to a 1-week low is bullish for metals. Also, gold prices recovered from their worst levels today after T-note yields turned lower. Silver garnered support from Tuesday’s stronger-than-expected US Mar new home sales report, a supportive factor for industrial metals demand.
More Precious Metal News from Barchart
- Is Silver Going to Break Out on the Upside?
- Dollar Falls on Lower Bond Yields and Stronger Stocks
- Dollar Gives up Early Gains as Stocks Rebound
- Dollar Climbs with T-Note Yields
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.