The dollar index (DXY00) fell to a 2.5-month low on Wednesday and finished down by -0.45%. Optimism that a peace deal between the US and Iran is imminent weighed on safe-haven demand for the dollar on Wednesday. also, Wednesday’s -7% plunge in crude oil prices eases inflation expectations and could prompt the Fed to pursue a dovish, dollar-negative monetary policy. The dollar extended its losses on Wednesday after the US Apr ADP employment change was below expectations, a dovish factor for Fed policy. In addition, Wednesday’s rally in the S&P 500 to a new record high has dampened liquidity demand for the dollar.
The dollar retreated on Wednesday after Axios reported that the US believes it’s close to an agreement with Iran to end the nearly 10-week war. The US sees Iran responding within 48 hours to a one-page memorandum of understanding to end the war, which would include both sides lifting restrictions on the Strait of Hormuz.
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The US Apr ADP employment change rose 109,000, below expectations of 120,000.
Hawkish comments on Wednesday from St. Louis Fed President Alberto Musalem were supportive of the dollar when he said, “Inflation is running meaningfully above our 2% target. We have risks on the employment side and on the inflation side, and in my understanding, the risks have been shifting towards more risk on the inflation side than the employment side.”
Swaps markets are discounting the odds at 6% for a 25 bp rate cut at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) climbed to a 2.5-week high on Wednesday and finished up by +0.53%. Wednesday’s Axios report that the US and Iran are close to an agreement to end the war weighed on the dollar and boosted the euro. also, Wednesday’s stronger-than-expected Eurozone Mar PPI report and the upward revision to the Eurozone Apr S&P composite PMI were bullish for the euro. In addition, Wednesday’s -7% plunge in crude oil prices is positive for the Eurozone economy and the euro, as Europe imports most of its energy.
Eurozone Mar PPI rose +2.1% y/y, stronger than expectations of 1.8% y/y and the fastest pace of increase in a year.
The Eurozone Apr S&P composite PMI was revised upward by +0.2 to 48.8 from the previously reported 48.6.
Swaps are discounting a 79% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) on Wednesday fell by -0.95%. The yen rallied to a 2.5-month high on Wednesday amid dollar weakness. Gains in the yen accelerated on Wednesday on reports that Japanese authorities were checking exchange rates in the interbank market, often a prelude to intervention in the forex market in support of the yen. also, Wednesday’s -6% plunge in crude oil prices is positive for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs. In addition, Wednesday’s sharply lower T-note yields were supportive of the yen. trading activity in the yen was well below normal on Wednesday, as markets in Japan were closed for a National holiday.
The markets are discounting a +54% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
June COMEX gold (GCM26) on Wednesday closed up +125.80 (+2.75%), and July COMEX silver (SIN26) closed up +3.722 (+5.06%).
Gold and silver prices soared on Wednesday, with gold posting a 1-week high and silver posting a 1.5-week high. Wednesday’s fall in the dollar index to a 2.5-month low, driven by hopes that the US and Iran are close to an agreement to end the war, is bullish for metals prices. also, Wednesday’s -7% plunge in crude oil prices eases inflation expectations and could persuade the world’s central banks to pursue easier monetary policies, a bullish factor for precious metals. In addition, sharply lower global bond yields on Wednesday were supportive for precious metals.
Precious metals also remain supported by uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty, which are boosting demand for precious metals as a store of value.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 4.5-month low on March 31 after climbing to a 3.5-year high on February 27. also, long holdings in silver ETFs fell to an 8.75-month low on Tuesday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following the recent news that bullion held in China’s PBOC reserves rose by +160,000 ounces to 74.38 million troy ounces in March, the seventeenth consecutive month the PBOC has boosted its gold reserves.
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.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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