Boosted by Quarter-End Demand
The dollar index (DXY00) experienced a slight rise on Wednesday, driven by quarter-end demand for the currency. Furthermore, dovish comments from the ECB on Wednesday weakened the euro, consequently boosting the dollar. Additionally, the yen, after recovering from a 33-year low, saw an uptick on speculations of potential Japanese intervention in currency markets to bolster the yen’s position.
US Mortgage Applications Decline
In the week ending March 22, US weekly MBA mortgage applications took a hit, falling by -0.7%. The refinancing mortgage sub-index dropped by -1.6%, while the purchase mortgage sub-index saw a decline of -0.2%. Furthermore, the average 30-year fixed-rate mortgage decreased by -4 basis points to 6.93% from 6.97%.
Market Expectations for FOMC Rate Cuts
Market sentiment is discounting the possibility of a -25 basis point rate cut, with a probability of 15% for the upcoming FOMC meeting on April 30-May 1 and 78% for the subsequent meeting on June 11-12.
EUR/USD and ECB Commentary
EUR/USD (^EURUSD) recorded a decrease of -0.08% on Wednesday. The euro registered modest losses following dovish remarks from ECB Governing Council member Kazaks and ECB Executive Board member Cipollone, who hinted at supporting an ECB rate cut during the June meeting. Despite this, losses in the euro were contained as the Eurozone economic confidence report on Wednesday surpassed expectations.
ECB’s Stance and Eurozone Economic Confidence
ECB Governing Council member Kazaks highlighted the ongoing low inflation in the Eurozone, suggesting that June might be an appropriate time for the ECB to initiate a reduction in borrowing costs. Meanwhile, ECB Executive Board member Cipollone emphasized the need for swift adjustments to the current monetary policy stance if economic projections align with those from March. The Eurozone economic confidence index climbed by +0.8 to 96.3, exceeding the anticipated 96.2.
Market Speculations on ECB Rate Cuts
Market swaps are factoring in a probability of 13% for a -25 basis point rate cut by the ECB in its upcoming meeting on April 11, while fully pricing in (101%) the rate cut in the subsequent meeting on June 6.
USD/JPY Rebound and Speculations
USD/JPY (^USDJPY) exhibited a decline of -0.13% on Wednesday. The yen bounced back from a 33-year low against the dollar, spurred on by speculations suggesting that Japanese authorities are gearing up to intervene in currency markets to prop up the yen following an unscheduled meeting by Japan’s Ministry of Finance, Bank of Japan, and Financial Services Agency.
Japanese Authorities Eyeing Currency Markets
Statements from Finance Minister Suzuki and Japan’s top currency official Kanda triggered short-covering in the yen, highlighting their vigilance regarding high forex market volatility. With a keen sense of urgency, Finance Minister Suzuki emphasized the abnormal forex fluctuations, signaling potential interventions to curb excessive moves.
Moreover, Japan’s top currency official Kanda emphasized that recent yen devaluations do not align with economic fundamentals and hinted at addressing speculative activities to stabilize the yen. Market swaps indicate a 1% probability of a +10 basis point rate increase by the BOJ for the April 26 meeting, rising to 18% for the following meeting on June 14.
Precious Metals Performance
April gold (GCJ4) closed up by +13.4 (+0.62%) on Wednesday, while May silver (SIK24) climbed by +0.129 (+0.52%). The uptrend in precious metals was supported by dovish statements from ECB officials and a decline in global bond yields. Additionally, geopolitical tensions in the Middle East drove safe-haven demands for precious metals, especially as ceasefire talks between Israel and Hamas stalled.
Impact of Dollar Strength and Stock Market Performance on Metals
However, the strengthening dollar had a bearish impact on metals on Wednesday. Additionally, the robust performance of the stock market reduced the safe-haven appeal of precious metals. Silver’s gains were limited due to negative spillover effects from the preceding day’s decline in copper prices to a two-week low.
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Please note that on the publication date, Rich Asplund did not hold any positions related to the securities discussed in this article. Information in this article is solely for informational purposes. For further details, refer to the Barchart Disclosure Policy.
The opinions expressed herein belong to the author and may not reflect the views of Nasdaq, Inc.
