Influx of Dollar Strength Amid Positive US Economic Data Influx of Dollar Strength Amid Positive US Economic Data

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The Rise of the Dollar

The dollar index (DXY00) has surged by +0.42% today, propelled by the encouraging US economic reports. Weekly jobless claims took an unexpected dip, the Mar S&P manufacturing PMI hit a 1-3/4 year high, and Feb existing home sales soared to a 1-year peak. These results paint a hawkish picture for Fed policy. In a curious turn of events, GBP/USD’s weakness gave the dollar an additional push after the BOE maintained interest rates unchanged. Today’s stock market surge has alleviated the liquidity demand for the dollar.

Steep Decline in Unemployment Claims

US weekly initial unemployment claims surprisingly fell by -2,000 to 210,000, defying expectations of a rise to 213,000. Concurrently, weekly continuing claims increased by +4,000 to 1.807 million, again outperforming forecasts of 1.820 million.

Positive Signs in Manufacturing and Housing

The US Mar Philadelphia Fed business outlook survey experienced a modest decline of -2.0 to 3.2, surpassing expectations of a drop to -2.5. Enticingly, the US Mar S&P manufacturing PMI unexpectedly climbed by +0.3 to a 1-3/4 year high of 52.5, surpassing the anticipated decline to 51.8. Meanwhile, US Feb existing home sales exhibited an unexpected 9.5% rise month-on-month, reaching a 1-year high of 4.38 million units, positively defying projections of a drop to 3.95 million.

Impact on Monetary Policy Expectations

The markets are now factoring in a mere 12% likelihood of a -25 bp rate cut at the April 30-May 1 FOMC meeting. The probability jumps to 78% for the following meeting on June 11-12, indicative of growing confidence in the economy.

European Markets React

EUR/USD (^EURUSD) is experiencing a decline of -0.42% today. The euro initially climbed but surrendered its gains after the Eurozone Mar S&P manufacturing PMI unexpectedly dropped. This dovish turn impacts ECB policy, with losses escalating following the robust US economic reports, which bolstered the dollar further.

Downward Movement in Eurozone PMI

The Eurozone Mar S&P manufacturing PMI came in lower than expected, down -0.8 to 45.7, contrary to projections of a rise to 47.0. On a brighter note, the Mar S&P composite PMI increased by +0.7 to a 10-month high of 49.9, surpassing the forecast of 49.7.

Expectations for ECB Rate Cuts

Swaps suggest a 4% chance of a -25 bp rate cut by the ECB at its upcoming meeting on April 11, with probabilities soaring to 86% for the subsequent meeting on June 6.

Japanese Market Update

USD/JPY (^USDJPY) has gained +0.13% today. The yen is marginally lower than before but holding above Wednesday’s 4-1/4 month low against the dollar. The rally in the Nikkei Stock Index, reaching a new record high, has quelled the yen’s safe-haven appeal. In addition, higher T-note yields have presented a challenge for the yen. Despite this, Japan’s trade and manufacturing reports continue to surprise on the upside, cushioning the yen’s losses.

Positive Indicators in Japanese Trade

In February, Japanese exports surged by +7.8% year-on-year, exceeding expectations of +5.1%. Imports also demonstrated resilience, rising by +0.5% year-on-year, matching forecasts.

BOJ Rate Adjustment Predictions

Market swaps are implying a 5% chance of a +10 bp rate increase by the BOJ at the April 26 meeting, with probabilities escalating to 34% for the succeeding meeting on June 14.

Fluctuations in Precious Metals

April gold (GCJ4) has risen by +0.86%, while May silver (SIK24) is down -0.35% today. Precious metals seem divided, with April gold hitting a contract high and nearest-futures (H24) gold marking an all-time peak. Enthusiasm stems from the FOMC’s reaffirmation of 75 bp of interest rate cuts this year. Moreover, a surge in gold demand from China has pushed prices higher, as Chinese consumers seek refuge amid the ongoing property crisis and stock market turbulence. The Swiss National Bank’s unexpected interest rate cut has further boosted gold’s appeal as a safe-haven asset. Geopolitical tensions in the Middle East are also fueling demand for precious metals.

Impact of Dollar Rally on Metals Market

Precious metals retraced from their highs, with silver slipping into negative territory, following the dollar’s surge on robust US economic reports. Additionally, the buoyant global equities market today has dampened the safe-haven allure of precious metals.

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 are 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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