Dollar Index Declines Amid Economic Concerns and Trade Tensions

The dollar index (DXY00) is down by -0.09% today. It surrendered early gains due to economic worries after the April Dallas Fed manufacturing survey revealed a general business activity index that fell more than expected to a five-year low. Concerns about the US-China trade war also weigh on the dollar, especially after President Trump stated that the US would not reduce tariffs on China unless they offered something substantial.

Initially, the dollar moved higher based on comments from US Treasury Secretary Bessent, who mentioned that the US is negotiating bilateral trade deals with 17 key trading partners, excluding China. Furthermore, rising T-note yields are providing some support to the dollar.

The US April Dallas Fed manufacturing survey indicated that the general business activity index dropped -19.5 points to a five-year low of -35.8, a fall greater than the expected -17.0.

Market expectations for a -25 basis point rate cut at the May 6-7 FOMC meeting have decreased significantly, now assessed at an 8% chance compared to 30% last week.

Euro Strengthens After Initial Losses

EUR/USD (^EURUSD) is up by +0.11%. The euro has rebounded from earlier losses following the dollar’s decline. Initially, it faced downward pressure due to dovish comments from European Central Bank (ECB) officials. ECB Governing Council member Villeroy de Galhau indicated that there is room for the ECB to lower interest rates. Additionally, Governing Council member Rehn noted downside risks to the ECB’s March inflation forecasts.

Villeroy added that the trade war ignited by US tariffs may impact the global economy but will not substantially affect inflation trends in Europe.

Rehn further stated that “I find it reasonable to assume that there are downside risks to the inflation outlook in the ECB’s March projections,” citing the effects of US tariffs.

Swaps now reflect a 100% probability for a -25 basis point rate cut from the ECB at the June 5 policy meeting.

Yen Weakens Ahead of BOJ Policy Meeting

USD/JPY (^USDJPY) has decreased by -0.60%. The yen is rising moderately due to short covering ahead of the Bank of Japan’s (BOJ) upcoming policy meeting. Rising T-note yields are limiting the yen’s gains. Additionally, a rally in the Nikkei Stock Index to a four-week high has reduced demand for the yen as a safe haven. Today, the BOJ announced it would purchase government bonds in May at the same pace as April, which dampens speculation of a hawkish shift.

Mixed Performance in Precious Metals

June gold (GCM25) is up +9.60 (+0.29%), while May silver (SIK25) is down -0.230 (-0.70%). Prices for precious metals are mixed today. The weaker dollar supports their prices. Gold is also benefitting from dovish comments made by ECB’s Villeroy about potential interest rate cuts. Meanwhile, concerns regarding the ongoing US-China trade war contribute to safe-haven demand for gold. Silver’s performance is hindered by Trump’s remarks that tariffs will not be lowered without concessions from China. Geopolitical conflicts in the Middle East are enriching the safe-haven appeal of precious metals amid ongoing tensions involving Israel-Hamas and the US-Houthi disputes. However, rising global bond yields are proving unfavorable for precious metals.

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
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