US Dollar Index Steadies After Weak Services Report

Amidst the ebb and flow of the financial markets, the US Dollar Index (DXY00) faltered by -0.30% as the US Mar ISM services index took an unexpected dip. The decline was exacerbated by the Mar ISM services price paid sub-index plummeting to a 4-year low, tipping the scales towards dovish implications for Fed policy. However, a glimmer of hope emerged with the stronger-than-anticipated US Mar ADP employment report, presenting a hawkish undercurrent for Fed policy. Atlanta Fed President Bostic’s assertion to postpone interest rate cuts until the fourth quarter added an element of caution to the market sentiment.

Unforeseen Decline in US ISM Services Index

Shortly after investors braced themselves for an uptrend, the US Mar ISM services index delivered a crushing blow by unexpectedly falling -1.2 to 51.4, falling short of the projected rise to 52.8. The shockwaves continued as the Mar ISM services price paid sub-index tumbled -5.2 to a 4-year low of 53.4, missing expectations of 58.4.

Optimism in US Employment Change

Contrasting the bleak ISM report, the US Mar ADP employment change painted a brighter picture, with an uptick of +184,000 compared to the anticipated +150,000. The tide turned even more favorably as the Feb ADP numbers were revised upward to +155,000 from the previously reported +140,000, showcasing a resilient jobs landscape.

EUR/USD Rises Amidst Dollar Weakness

The EUR/USD pair (^EURUSD) rode the wave of dollar weakness, marking a +0.36% rise. The euro’s ascent was underpinned by a weakened dollar, with additional support stemming from a report confirming that the Eurozone Feb unemployment rate remained at a record low. Despite this, the Eurozone Mar CPI came in lower than anticipated, hinting at a dovish stance towards ECB policy.

Equilibrium in Eurozone Unemployment Rate and CPI

The Eurozone’s struggle for economic stability was evident as the Eurozone Feb unemployment rate stagnated at a record low of 6.5%, missing expectations of a decline to 6.4%. Moreover, the Eurozone Mar CPI figures revealed a slight easing to 2.4% y/y from 2.6% y/y in Feb, although this surpassed predictions of 2.5% y/y. Core CPI also saw a dip to 2.9% y/y from 3.1% y/y in Feb, exceeding expectations with the smallest increase in 2 years.

Speculations on ECB Rate Cuts in Focus

The atmosphere surrounding the ECB remained cautious as ECB Governing Council member Holzmann dismissed the possibility of an April rate cut, suggesting that a decision might be on the horizon by June, contingent on the data. Market swaps hinted at a slight possibility for a -25 bp rate cut by the ECB in its upcoming meetings, underscoring the cautious approach adopted by the governing body.

Golden Surge Amidst Dollar Weakness and Inflation Expectations

As the dollar stumbled, precious metals shone brightly, with June gold (GCM4) soaring by +0.66% and May silver (SIK24) leaping by +3.40%. Riding high on this surge, June gold reached a contract high, while May silver hit a contract high alongside nearest-futures April gold marking an all-time peak and nearest-futures April silver soaring to a 2-year high.

The weaker dollar created a conducive environment for metals, with escalated inflation expectations driving up the demand for gold as a hedge against inflation. Geopolitical tensions, such as the recent threats by Iran against Israel in response to airstrikes, further fueled safe-haven demand for precious metals. Moreover, the supportive comments by San Francisco Fed President Daly and Cleveland Fed President Mester advocating for three Fed rate hikes this year bolstered the metals market.

Challenges Amidst Gold’s Ascent

Despite the shining performance of gold, hurdles emerged in the form of higher T-note yields and a strong US Mar ADP employment report, both painting a hawkish stance on Fed policy. Additionally, the ongoing process of long liquidation and position squaring cast a shadow over precious metals as market participants eagerly awaited a speech from Fed Chair Powell later in the day.

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.