Dollar Index Declines Amid US-China Trade Uncertainty and Economic Data
The dollar index (DXY00) experienced a drop of -0.24% on Monday, driven by uncertainty regarding U.S. trade policy. President Trump announced on Sunday that there are no immediate plans to engage in discussions with Chinese President Xi Jinping. However, he hinted that trade agreements with some U.S. trading partners might be reached as soon as this week. The dollar did recover from its lowest point after Treasury note yields increased when the U.S. April ISM services index surpassed expectations.
U.S. Economic Indicators Surpass Expectations
The U.S. April ISM services index unexpectedly climbed by +0.8 to 51.6, exceeding predictions of a decline to 50.2. Additionally, the prices paid sub-index within the ISM services rose by +4.2 to reach a 2-1/4 year high of 65.1, surpassing the anticipated figure of 61.4.
Currently, markets are pricing in a mere 2% chance of a -25 basis point rate cut following Wednesday’s two-day FOMC meeting.
Eurozone Developments Impact EUR/USD
The EUR/USD (^EURUSD) pair saw an increase of +0.19% on Monday. The weakening dollar helped support modest gains for the euro. Economic news from the Eurozone revealed that the May Sentix investor confidence index rose more than expected, proving bullish for the euro. Specifically, the index improved by +11.4 to -8.1, outperforming expectations of -11.5.
Swaps markets currently indicate a 96% probability of a -25 basis point rate cut by the European Central Bank at its policy meeting on June 5.
Yen Strengthens Despite Higher T-Note Yields
The USD/JPY (^USDJPY) pair fell by -0.78% on Monday. The yen gained due to heightened safe-haven demand amid concerns that the U.S.-China trade war will continue, especially after President Trump stated he has no plans to communicate with President Xi. While higher Treasury note yields typically weaken the yen, trading activity was lighter than usual due to Japan’s Children’s Day holiday.
Precious Metals Gain Amid Safe-Haven Demand
June gold (GCM25) closed up +79.00 (+2.44%), and July silver (SIN25) increased by +0.215 (+0.67%) on Monday. The weaker dollar contributed to higher precious metals prices. Increased concerns surrounding the ongoing U.S.-China trade conflict are also driving safe-haven demand for these metals. Additionally, geopolitical instability in the Middle East is sustaining interest in safe-haven assets due to continued conflicts involving Israel and Hamas, as well as the U.S. and Houthi forces.
However, rising Treasury note yields are capping potential gains in precious metals prices. Concerns about the U.S.-China trade disputes potentially impacting global economic growth and industrial metals demand are negatively affecting silver prices.
On the date of publication, Rich Asplund did not hold any positions, either directly or indirectly, in any of the securities mentioned in this article. All information offered is for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
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