The dollar index (DXY00) tumbled to a 2.5-month low today and is down by -0.46%. Optimism that a peace deal between the US and Iran is near is weighing on safe-haven demand for the dollar today. Also, today's -6% 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 today after the US Apr ADP employment change came in below expectations, a dovish factor for Fed policy. In addition, today's rally in the S&P 500 to a new record high has dampened liquidity demand for the dollar.
The dollar retreated today 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.
The US Apr ADP employment change rose 109,000, below expectations of 120,000.
Hawkish comments today from St. Louis Fed President Alberto Musalem are 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 today and is up +0.50%. Today's Axios report that the US and Iran are close to an agreement to end the war is weighing on the dollar and boosting the euro. Also, today's stronger-than-expected Eurozone Mar PPI report and the upward revision to the Eurozone Apr S&P composite PMI are bullish for the euro. In addition, today's -6% 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 76% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) today is down by -1.10%. The yen rallied to a 2.5-month high today amid dollar weakness. Gains in the yen accelerated today on signs that the Japanese government had intervened in the forex market in support of the yen. Also, today'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, today's sharply lower T-note yields are supportive of the yen. Trading activity in the yen is well below normal today, as markets in Japan are closed for a National holiday.
The markets are discounting a +64% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
June COMEX gold (GCM26) today is up +154.50 (+3.38%), and July COMEX silver (SIN26) is up +4.524 (+6.15%).
Gold and silver prices are soaring today, with gold at a 1-week high and silver at a 1.5-week high. Today'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, today's -6% 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 today are 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.