Dollar Supported by Trade Optimism and Higher Bond Yields

Globe and Mail

a day ago

The dollar index (DXY00) today is up by +0.18%. The dollar today is adding to Tuesday's gains on positive carryover from President Trump's action over the past weekend to extend the deadline for a 50% tariff on US importers of EU goods by about 5 weeks to July 9 from June 1. The dollar also has support from higher T-note yields.
Gains in the dollar are limited by some negative carryover from last Thursday when the House passed President Trump's tax and spending plan, which would add to the burgeoning US budget deficit.
The US May Richmond Fed manufacturing survey rose by +4 to -9, right on expectations.
The markets are discounting the chances at 2% for a -25 bp rate cut after the June 17-18 FOMC meeting.
EUR/USD (^EURUSD) today is down by -0.11%. Today's dollar strength is undercutting the euro. Also, weaker-than-expected economic news is weighing on the euro after German May unemployment rose more than expected and after German Apr import prices fell more than expected, dovish factors for ECB policy. Losses in the euro are limited after the ECB's Apr 1-year CPI expectations were the highest in 14 months, a hawkish factor for ECB policy.
The ECB Apr 1-year CPI expectations indicator of +3.1% y/y was stronger than expectations of +2.8% y/y and the highest in 14 months. The ECB Apr 3-year CPI expectations indicator was unchanged from March at +2.5% y/y, right on expectations.
German May unemployment rose by +34,000, higher than expectations of +12,000 and the most in 2-3/4 years. The May unemployment rate was unchanged at 6.3%, right on expectations.
The German Apr import price index fell -1.7% m/m, a bigger decline than expectations of -1.4% m/m and the largest drop in more than two years.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) today is up by +0.24%. The yen today added to Tuesday's sharp losses and fell to a 1-week low against the dollar on negative carryover from Tuesday when Bloomberg News reported that Japan's finance ministry sent a questionnaire to market participants regarding appropriate issuance amounts for government bonds, a sign the finance ministry may seek to reduce debt issuance. Also, higher T-note yields today are bearish for the yen.
June gold (GCM2 5) today is up +4.10 (+0.12%), and July silver (SIN2 5) is down -0.021 (-0.06%). Precious metals today are mixed on consolidation after Tuesday's sharp losses. Demand for gold as an inflation hedge rose today after the ECB's Apr 1-year CPI expectations indicator of +3.1% y/y was stronger than expectations of +2.8% y/y and the highest in 14 months. In addition, precious metals prices have continued safe-haven support from uncertainty about global trade relations and geopolitical tensions in Ukraine and the Middle East.
Bearish factors for precious metals include today's stronger dollar and higher global bond yields. Silver prices are also under pressure on concern that an escalation of the global trade war would dampen economic activity and demand for industrial metals.