Dollar Index Declines Amid Trade Policy Uncertainty and Market Reactions
The dollar index (DXY00) has decreased by -0.40%, fueled by uncertainty regarding U.S. trade policies. President Trump announced on Sunday that he has no immediate plans to engage with Chinese President Xi Jinping. However, he mentioned potential trade deals with some U.S. trading partners could materialize as soon as this week. The dollar made a partial recovery from its lowest point after U.S. Treasury yields rose due to a stronger-than-expected April ISM services index.
April ISM Services Index Surprises with Positive Growth
The U.S. April ISM services index unexpectedly increased by +0.8 to 51.6, contrary to predictions of a decline to 50.2. In addition, the ISM services prices paid sub-index rose by +4.2, reaching a 2-1/4 year high of 65.1, surpassing expectations of 61.4.
Markets are currently pricing in only a 2% probability of a -25 basis point rate cut following Wednesday’s two-day FOMC meeting.
Euro Benefits from Dollar Weakness and Strong Sentix Index
EUR/USD (^EURUSD) is up by +0.40%. Today’s weakness in the dollar is benefiting the euro. Recent economic data from the Eurozone indicates that the May Sentix investor confidence index surged by +11.4 to -8.1, exceeding forecasts of -11.5.
Swaps are indicating a 95% likelihood of a -25 basis point rate cut by the European Central Bank (ECB) during its policy meeting on June 5.
Yen Strengthens Amid Safe-Haven Demand
USD/JPY (^USDJPY) has declined by -0.81%. The yen is gaining ground due to increased safe-haven demand arising from concerns about the persistence of the U.S.-China trade war. These sentiments were sharpened when President Trump stated he has no plans to engage with President Xi Jinping. However, today’s higher Treasury yields are creating headwinds for the yen’s strength. The market’s reactions to the yen may be magnified as Japanese markets are closed today for the Children’s Day holiday.
Precious Metals Rise Amid Trade Tensions
June gold (GCM25) is up +79.80 (+2.46%) and July silver (SIN25) has increased by +0.241 (+0.75%). Prices for precious metals are trending higher, benefiting from the weaker dollar. Concerns regarding the ongoing U.S.-China trade war are driving safe-haven demand for these metals. Additionally, geopolitical tensions in the Middle East, including conflicts involving Israel-Hamas and the U.S.-Houthi, are contributing to this demand.
However, higher Treasury yields are capping the upside potential for precious metal prices. Worries that the U.S.-China trade war may impact global economic growth and industrial metals demand are negative factors for silver prices.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data herein are provided solely for informational purposes. For more details, please view the Barchart Disclosure Policy.
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