Dollar Index Hits 3-Year Low Amid Fed Chair Controversy
The dollar index (DXY00) has dropped by -0.94%, reaching a new 3-year low. A selloff in the dollar has emerged from a renewed lack of confidence spurred by remarks from National Economic Council Director Kevin Hassett. He indicated that President Trump is weighing the option of dismissing Fed Chair Jerome Powell. Such an action would raise significant concerns regarding the Federal Reserve’s independence, further undermining confidence in the dollar—already strained by President Trump’s aggressive trade tariffs that prompted foreign investors to sell off their dollar assets. This decline was compounded by disappointing U.S. March leading indicators, which recorded the largest drop in 17 months.
In March, U.S. leading indicators fell by -0.7% m/m, worse than the anticipated decrease of -0.5% m/m.
This week, market attention will focus on potential changes to U.S. trade policies. On Wednesday, March new home sales are projected to rise by +0.7% m/m, reaching 681,000 units. Additionally, the Fed’s Beige Book will be released on Wednesday. By Thursday, March capital goods orders, excluding defense aircraft and parts, are expected to increase by +0.1% m/m. In the same period, March existing home sales are anticipated to fall by -2.8% m/m to 4.14 million units. Lastly, Friday will bring the revised University of Michigan’s April consumer sentiment index, which is expected to remain unchanged at 50.8.
Currently, markets assign a 14% probability to a -25 basis point rate cut following the May 6-7 Federal Open Market Committee (FOMC) meeting, a decrease from 30% a week prior.
The euro (EUR/USD) has risen by +1.04%, reaching a 3.5-year high, benefiting from the dollar’s decline. Additionally, hawkish comments from ECB Governing Council member Joachim Müller suggesting that U.S. trade tariffs and increased public spending in Germany may ignite inflation have further supported the euro. Trading activity for EUR/USD may be more pronounced today due to lower volumes, as many European markets are closed for the Easter Monday holiday.
Swaps are pricing in a 92% chance of a -25 basis point rate cut by the ECB at their policy meeting on June 5.
In the currency market, USD/JPY has decreased by -1.12%. The yen has rallied to a 7-month high against the dollar, driven by increased safe-haven buying amid declining confidence in the dollar. The possibility of President Trump dismissing Fed Chair Powell has raised concerns about the Fed’s autonomy. Support for the yen also stems from a Bloomberg report indicating that Bank of Japan officials see no immediate need to alter their gradual approach to increasing interest rates.
Precious metals are experiencing gains today, with June gold (GCM25) up +108.40 (+3.26%) and May silver (SIK25) up +0.345 (+1.065%). Gold has reached a contract high, and nearby futures (J25) have peered at a record of $3,418.50 an ounce. The dollar index’s slide to a 3-year low bolsters precious metals’ allure. A crisis of confidence in dollar assets is driving the demand for these metals as a secure store of value. Factors such as the ongoing U.S.-China trade war and geopolitical tensions in the Middle East, particularly post ceasefire breakdown between Israel and Hamas, add to this demand.
However, rising T-note yields are applying downward pressure on precious metals. Additionally, the previously mentioned report from Bloomberg, discussing the BOJ’s current stance, is seen as unfavorable for precious metals. Concerns regarding the U.S.-China trade war’s impact on economic growth further limit gains for silver due to its industrial use.
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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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
