Dollar Rises and Gold Falls as Global Bond Yields Climb

The dollar index DXY today is up by +0.12% at a 1-week high. Higher T-note yields today are supporting moderate gains in the dollar. Also, the weakness in stocks today has boosted some liquidity demand for the dollar. The dollar fell back from its best levels after US Apr existing home sales unexpectedly declined. Also, today’s rally in the British pound GBPUSD to a 2-month high is negative for the dollar.

US Apr existing home sales unexpectedly fell -1.9% m/m to 4.14 million, versus expectations of an increase to 4.23 million.

The markets are discounting the chances for a -25 bp rate cut at 0% for the June 11-12 FOMC meeting and 18% for the following meeting on July 30-31.

EUR/USD EURUSD today is down by -0.16% to a 1-week low. A stronger dollar today is weighing on the euro. Also, dovish comments from ECB President Lagarde undercut the euro today when she said there's a "strong likelihood" of an ECB interest rate cut on June 6. Limiting losses in the euro was today’s monthly report from the Bundesbank that showed negotiated Q1 pay raises in Germany rose +6.2%, well above expectations of +4.8%, which pushed bund yields higher and is a hawkish factor for ECB policy.

Eurozone Apr new car registrations rose +13.7% y/y to 914,000, the largest increase in 6 months.

In its monthly report released today, the Bundesbank reported negotiated Q1 pay raises in Germany rose +6.2%, well above expectations of +4.8%. The Bundesbank said, " As a result, still-high price pressure on services could persist for longer.”

ECB President Lagarde said there's a "strong likelihood" of an ECB interest rate cut on June 6, saying, "I'm really confident that we have inflation under control.

ECB Governing Council member and Bundesbank President Nagel said, "Even if rates are lowered by the ECB for the first time in June, that does not mean we will cut rates further" in subsequent meetings.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 94% for its next meeting on June 6.

USD/JPY USDJPY today is up by +0.19%. The yen today fell to a 1-week low against the dollar on strength in T-note yields. Also, today's weaker than expected Japanese trade news was bearish for the yen. On the positive side for the yen was today’s report on Japan Mar core machine orders that unexpectedly increased.

Japanese trade data was weaker than expected as Apr exports rose +8.3% y/y, below expectations of +11.0% y/y. Also, Apr imports rose +8.3% y/y, below expectations of +8.9% y/y. 

Japan Mar core machine orders unexpectedly rose +2.9% m/m versus expectations of a -2.0% m/m decline.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 25% for the June 14 meeting.

June gold (GCM4) today is down -23.1 (-0.95%), and July silver (SIN24) is down -0.603 (-1.88%). Precious metals prices today are moderately lower. Today’s rally in the dollar index to a 1-week high is bearish for metals prices. Also, higher global bond yields today are weighing on precious metals. Losses in silver prices accelerated after US Apr existing home sales unexpectedly declined, a negative factor for industrial metals demand.

Dovish comments today from ECB President Lagarde supported gold demand as a store of value when she said there's "strong likelihood" of an ECB interest rate cut on June 6. Today’s economic reports showed higher than expected UK Apr CPI and stronger than expected German Q1 wages, which also boosted demand for gold as a hedge against inflation.

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.