Home Most Popular The Euro’s Strength Rattles the Dollar in the Forex Market

The Euro’s Strength Rattles the Dollar in the Forex Market

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US Dollar Takes a Tumble

In a surprising turn of events, the dollar index (DXY00) saw a decline of -0.27% today, stepping back from a 4-1/2 month peak. The euro’s robust performance rocked the dollar boat, leading to long liquidation in the greenback. Despite this setback, the dollar finds solace in the positive US factory orders and job openings reports. Furthermore, escalating bond yields have provided some buoyancy, especially with the 10-year T-note yield hitting a 4-month summit.

Positive Indicators from the US Economy

The unexpected rise of +8,000 in US Feb JOLTS job openings to 8.756 million showcases a more robust labor market than anticipated. Additionally, the +1.4% m/m increase in US Feb factory orders surpassing the projected +1.0% m/m growth signifies underlying strength in the economy. Market participants are reevaluating the likelihood of a -25 bp rate cut, with the odds currently standing at 7% for the upcoming FOMC meeting on April 30-May 1 and 61% for the subsequent gathering on June 11-12.

Euro Rises Against the Dollar

EUR/USD (^EURUSD) experienced a +0.33% uptick, rebounding from a 1-1/2 month slump. The upward revision in Eurozone Mar S&P manufacturing PMI fueled some short-covering in the euro. As the dollar retreated from its 4-month high, gains in the euro gathered momentum. However, the euro’s ascent was tempered by the lower-than-expected German Mar CPI report, hinting at a dovish stance in ECB policy. The Eurozone Mar S&P manufacturing PMI was revised higher by +0.4 to 46.1, up from the previously reported 45.7.

ECB’s Inflation Expectations

ECB’s Feb 1-year inflation expectations dipped to 3.1% from 3.3% in Jan, marking a 2-year low. Meanwhile, the Feb 3-year inflation expectations remained stable at 2.5%, defying expectations for a decline to 2.4%. On the other hand, German Mar CPI (EU harmonized) showed a +0.6% m/m and +2.3% y/y uptick, slightly below the projected +0.7% m/m and +2.4% y/y estimates. Swaps are currently pricing in a 14% chance of a -25 bp rate cut by the ECB in its upcoming meeting on April 11, with a full 103% probability skewing towards a cut in the subsequent session on June 6.

Japanese Yen’s Resilience

USD/JPY (^USDJPY) is down by -0.11%, with the yen staging a recovery after initial losses. Speculation is rife that Japanese authorities may intervene in currency markets to prop up the yen, following Japanese Finance Minister Suzuki’s remarks about taking appropriate actions against excessive currency movements. Despite an initial dip due to the spike in T-note yields, the yen regained some ground. Swaps are only pricing in a 0% chance of a +10 bp rate hike by the BOJ at the April 26 meeting, with a slight 14% probability for the subsequent session on June 14.

Precious Metals Shine Bright

June gold (GCM4) is up +36.0 (+1.60%), while May silver (SIK24) recorded a +0.632 (+2.52%) increase. Precious metals are on an upward trajectory today, with June gold hitting a contract high and nearest-futures April gold reaching an all-time peak. Similarly, silver prices climbed to a 1-1/2 week high. Geopolitical tensions are steering precious metals prices higher after Israel launched an airstrike on Iranian targets in Syria, triggering threats of retaliation from Iran. Additionally, a rise in inflation outlook is driving the demand for gold as an inflation hedge, as seen in the US 10-year breakeven inflation rate ascending to a 1-1/2 week high. Silver’s rally is further bolstered by the surge in copper prices to a 1-1/2 week zenith. However, higher global bond yields today pose a downside risk for precious metals. 

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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.

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