Dollar Strengthens Amid Trade Deal and Labor Market Optimism
The dollar index (DXY00) has risen by +0.30% today, driven by easing global trade tensions following President Trump’s announcement of a comprehensive trade deal with the UK. The dollar found additional support as US weekly jobless claims fell more than expected and Q1 unit labor costs increased beyond forecasts, both considered hawkish signals for Federal Reserve policy. Despite these gains, the dollar’s rise was capped by a decline in Q1 nonfarm productivity, which marked the first drop in nearly three years.
Weekly initial unemployment claims dropped by 13,000 to 228,000, reflecting a stronger labor market than the anticipated 230,000 claims.
In Q1, nonfarm productivity fell by -0.8%, aligning with expectations, marking the first decline in roughly 2¾ years. Meanwhile, unit labor costs surged by +5.7%, exceeding expectations of +5.1% and representing the most significant rise in one year. Currently, markets are pricing a 20% chance of a -25 basis point rate cut after the Federal Open Market Committee (FOMC) meeting on June 17-18.
Eurozone Developments: Mixed Signals from Germany
The EUR/USD (^EURUSD) has increased by +0.03% today, with the euro gaining modest ground following a better-than-expected rise in German industrial production for March. This increase was the largest in nearly 3½ years.
German industrial production rose by +3.0% month-over-month, surpassing forecasts of +1.0% month-over-month. Although German exports also showed a slight increase of +1.1% month-over-month, imports unexpectedly fell by -1.4% month-over-month. Markets are now pricing in a 95% chance of a -25 basis point rate cut by the European Central Bank (ECB) at its policy meeting on June 5.
Yen Weakens as Trade Tensions Ease
The USD/JPY (^USDJPY) has risen by +0.51% today, with the yen experiencing moderate losses due to diminished safe-haven demand following President Trump’s trade deal announcement with the UK. The yen is also under pressure from the dovish minutes released from the March 18-19 Bank of Japan (BOJ) meeting. However, losses were partly offset as the 10-year Japanese Government Bond (JGB) yield climbed to a one-week high, thereby improving the yen’s interest rate position.
The BOJ meeting minutes revealed a cautious approach among its members regarding potential interest rate hikes, particularly in light of possible impacts from US tariffs. No significant adjustments to the current bond purchase strategy were deemed necessary.
Precious Metals Mixed Amid Market Influences
June gold (GCM25) is down -28.50 (-0.84%), while July silver (SIN25) is up +0.069 (+0.21%). Today’s fluctuation in precious metals prices reflects a stronger dollar, which is weighing on these assets. Additionally, diminished safe-haven demand resulting from easing global trade tensions has contributed to this mix. Rising global bond yields, along with Fed Chair Powell’s recent comment about the need for caution in adjusting interest rates, add further pressure to the precious metals market.
Nevertheless, silver prices managed to rebound after initial losses as positive indicators from German industrial production suggested strong demand for industrial metals. The recent US trade deal also raised hopes that high tariffs may be negated, lessening the potential for long-term economic impacts.
Despite some losses, demand for precious metals as a safe-haven asset has been bolstered by geopolitical risks. Recent military actions in South Asia and ongoing tensions in the Middle East have continued to heighten these risks, supporting interest in precious metals as a stable store of value.
On the date of publication, Rich Asplund did not have any direct or indirect positions in any securities mentioned in this article. All data is for informational purposes. For more information, please review the Barchart Disclosure Policy here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
