The dollar index (DXY00) on Wednesday rose +0.16%. The dollar on Wednesday recovered from a 1-1/2 week low and moved moderately higher. Strength in T-note yields Wednesday boosted the dollar. Also, weakness in the yen was positive for the dollar as the yen Wednesday fell to a 33-year low against the dollar.
US Mar capital goods new orders non-defense ex-aircraft and parts, a proxy for capital spending, rose +0.2% m/m, right on expectations.
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) on Wednesday was unchanged. The euro on Wednesday fell back from a 1-1/2 week high and finished little changed. Strength in the dollar Wednesday undercut the euro. Also, divergence between the ECB and Fed is weighing on the euro, with the ECB expected to start cutting interest rates in June while the Fed delays rate cuts until later in the year.
The euro on Wednesday initially moved higher after the German April IFO business climate index rose more than expected to an 11-month high. Also, hawkish comments from ECB Governing Council member Nagel were bullish for the euro when he said an ECB rate cut in June does not have to kick off a series of rate cuts.
The German Apr IFO business climate index rose +1.5 to an 11-month high of 89.4, stronger than expectations of 88.8.
ECB Governing Council member and Bundesbank president Nagel said a June rate cut by the ECB “won’t necessarily” start a series of rate cuts.
Swaps are discounting the chances for a -25 bp rate cut by the ECB at 84% for its next meeting on June 6.
USD/JPY (^USDJPY) Wednesday rose by +0.27%. The yen today tumbled to a new 33-year low against the dollar and is moderately lower. Higher T-note yields on Wednesday and a stronger dollar weighed on the yen. Also, Wednesday’s +2% rally in the Nikkei Stock Index reduced safe-haven demand for the yen. Losses in the yen were caused by concern that Japanese authorities could intervene in the forex market at any time to support the yen after many Japanese officials recently said they would take necessary action to address excessive moves in the yen if needed.
Japan Mar PPI services prices rose +2.3% y/y, stronger than expectations of +2.1% y/y.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1% for the April 26 meeting and 36% for the following meeting on June 14.
June gold (GCM4) Wednesday closed down -3.7 (-0.16%), and May silver (SIK24) closed down -0.016 (-0.064%). Precious metals Wednesday posted modest losses. A stronger dollar on Wednesday was bearish for precious metals. Also, higher global bond yields on Wednesday weighed on precious metals. Gold prices were also under pressure due to hawkish comments from ECB Governing Council member Nagel, who said an ECB rate cut in June does not mean the ECB will begin a series of rate cuts.
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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.
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