Dollar Slumps and Gold Rallies on Fed Rate Cut Hopes

The dollar index (DXY00) today is down by -0.26% and dropped to a 5-week low. Today’s US economic reports were dovish for the Fed and weighed on the dollar.  Today’s rally in the S&P 500 to a record high also curbed liquidity demand for the dollar. 

US Apr CPI eased to +3.4% y/y from +3.5% y/y in March, right on expectations.  Apr CPI ex-food and energy eased to +3.6% y/y from +3.8% y/y in March, right on expectations and the smallest increase in 3 years.

US Apr retail sales were unchanged m/m, weaker than expectations of +0.4% m/m.  However, Apr retail sales ex-autos rose +0.2% m/m, right on expectations.

The US May Empire manufacturing survey general business conditions index unexpectedly fell -1.3 to -15.6, weaker than expectations of an increase to -10.0.

The US May NAHB housing market index fell -6 to a 4-month low of 45, weaker than expectations of 50.

Hawkish comments Tuesday evening from Kansas City Fed President Schmid were supportive of the dollar when he said interest rates could remain high "for some time" as policymakers await evidence that price pressures are easing.

The markets are discounting the chances for a -25 bp rate cut at 5% for the June 11-12 FOMC meeting and 31% for the following meeting on July 30-31.

EUR/USD (^EURUSD) today rallied to a 5-week high and is up by +0.24%. Today’s slump in the dollar is boosting the euro.  The euro also found support on today’s stronger-than-expected Eurozone industrial production report.  On the bearish side for the euro were dovish comments today from ECB Governing Council member Villeroy de Galhau, who said Eurozone inflation data for April give the ECB confidence to begin cutting interest rates in June.   

Eurozone Mar industrial production rose +0.6% m/m, stronger than expectations of +0.4% m/m.

The European Commission forecasted Eurozone 2024 GDP growth at +0.8%, unchanged from a February estimate, and lowered its Eurozone 2024 inflation forecast to 2.5% from February’s 2.7% forecast.

ECB Governing Council member Villeroy de Galhau said Eurozone inflation data for April give the ECB confidence to begin cutting interest rates in June before continuing to loosen monetary policy at a pragmatic pace.

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) today is down by -0.55%.  The yen is moving higher today on weakness in T-note yields. The yen also has carryover support from Monday when the BOJ cut the amount of its monthly bond purchases, which pushed the 10-year JGB bond yield up to an 11-year high and boosted speculation the BOJ will continue to tighten monetary policy. 

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 33% for the June 14 meeting.

June gold (GCM4) this morning is up +8.3 (+0.35%), and July silver (SIN24) is up +0.298 (+1.06%).  Precious metals prices today are moderately higher, with gold climbing to a 3-week high and silver climbing to a 1-month high.  Today’s slump in the dollar index to a 5-week low supported metals prices.  Also, falling global bond yields today are bullish for precious metals.  In addition, metals prices gained on today’s dovish US economic reports.  Silver has carryover support from today’s rally in copper prices to an all-time high. 

More Precious Metal News from Barchart

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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