Dollar Gains on Hopes of De-Escalation of US-China Trade Conflict
Gains in the dollar are limited as T-note yields are lower after Thursday's dovish Fed comments from Cleveland Fed President Hammack and Fed Governor Waller bolstered speculation the Fed could cut interest rates as soon as June.
The University of Michigan US Apr consumer sentiment index was unexpectedly revised upward by +1.4 points to 52.2 from the previously reported 50.8, stronger than expectations of 50.5.
The University of Michigan US Apr 1-year inflation expectations indicator was revised lower to +6.5% from the previously reported +6.7%, weaker than expectations of an upward revision to +6.8%.
The markets are discounting the chances at 8% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) today is down by -0.21%. The euro is under pressure today from a stronger dollar. Also, dovish comments today from ECB Governing Council member Holzmann weighed on the euro and boosted the chances for an ECB rate cut to 100% at its June meeting when he said he sees a disinflationary impact in the Eurozone from US tariffs.
ECB Governing Council member Holzmann said that "so far, the net impact from the US tariff announcements seems to be rather deflationary than inflationary."
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) today is up by +0.72%. The yen fell to a 1-1/2 week low against the dollar today on signs of de-escalation of the US-China trade war, which reduced safe-haven demand for the yen after Bloomberg reported that the Chinese government is considering suspending the 125% tariffs on some US imports. Also, today's rally in the Nikkei Stock Index to a 3-1/2 week low curbed safe-haven demand for the yen. Losses in the yen are limited after today's news that Japan's Tokyo Apr CPI rose more than expected, a hawkish factor for BOJ policy. Also, lower T-note yields today are limiting losses in the yen.
Japan Apr Tokyo CPI rose +3.5% y/y, stronger than expectations of +3.3% y/y and the biggest increase in 2 years. Apr Tokyo CPI ex-fresh food and energy rose +3.1% y/y, stronger than expectations of +2.8% y/y and the biggest increase in 14 months.
June gold (GCM2 5) today is down -53.60 (-1.60%), and May silver (SIK2 5) is down -0.563 (-1.68%). Precious metals prices today are sharply lower due to a stronger dollar. Also, hopes for a de-escalation of the US-China trade war have sparked long liquidation pressures in precious metals today after Bloomberg reported that the Chinese government is considering suspending the 125% tariffs on some US imports, including medical equipment and industrial chemicals like ethane. In addition, today's news showing Japan's Apr Tokyo CPI rose more than expected may prompt the BOJ to keep raising interest rates, a negative factor for precious metals.
Lower T-note yields today are supportive of precious metals. Also, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals as the Israel-Hamas and the US-Houthi conflicts continue.
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