Strength in T-note Yields Fuel Dollar Rally
The dollar index (DXY00) soared to a 1-1/2 week high on Monday, closing up +0.14%. The surge in T-note yields lent crucial support to the dollar’s climb as the 10-year T-note yield reached a 3-week pinnacle. The unexpected rise in the NAHB housing market index, hitting an 8-month high, further buoyed the dollar amidst a landscape of financial news favoring American economic prospects. An unforeseen factor reining in the dollar’s advances was the unexpected rally in stocks on Monday, which notably dampened liquidity demand for the greenback.
Euro Falters on Dovish ECB Comments
EUR/USD (^EURUSD) plummeted on Monday to a 1-1/2 week low, finishing down by -0.16%. The euro initially displayed strength but faltered due to dovish remarks from ECB Governing Council member de Cos, hinting at possible interest rate cuts in the near future. De Cos’s statement about interest rate reductions in June rattled market confidence in the euro’s stability. As the 10-year German bund yield peaked at a 2-week high, the euro initially showed resilience before succumbing to the weight of potentially decreased interest rates.
Yen’s Decline Tied to T-Note Yield Strength
USD/JPY (^USDJPY) exhibited a rise of +0.05% on Monday, with the yen hitting a 1-week low against the dollar. This weakening of the yen was primarily driven by the robust performance of T-note yields, alongside disappointing Japanese economic data showcasing a decline in June core machine orders exceeding expectations. The forthcoming BOJ meeting creates an air of uncertainty as speculation abounds about the likelihood of the BOJ exiting its negative interest rate policy, an eventuality priced in by swap markets at a modest 46%.
Precious Metals Display Mixed Fortunes
April gold (GCJ4) closed Monday up +2.8 (+0.13%), while May silver (SIK24) concluded dowsed down -0.116 (-0.46%). The day witnessed a mixed performance in precious metals, with short covering in anticipation of the upcoming FOMC meeting lending some support. As the 10-year breakeven inflation rate surged to a 1-1/2 week high, demand for gold as an inflation hedge rose. Silver, on the other hand, was buoyed by positive global economic news, highlighting China’s surpassing industrial production figures and the unexpected rise in the US Mar NAHB housing market index.
Nevertheless, the day saw a decline in precious metals due to the dollar index’s rally to a 1-1/2 week high, as well as the negative impact of higher T-note yields. Additionally, the stock market rally on Monday subdued the safe-haven appeal for precious metals, dampening their overall market sentiment.
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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.
