The dollar index (DXY00) today is down by -0.03%. The dollar gave up an early advance today and turned lower after US Apr existing home sales rose less than expected. Also, strength in the Chinese yuan is weighing on the dollar after the yuan rallied to a 3-year high today. In addition, today’s rally in the S&P 500 to a new record high has curbed liquidity demand for the dollar.
The dollar initially rose today amid increased safe-haven demand after the US and Iran failed to reach terms to end the war. Also, today’s +2% jump in crude oil prices boosted inflation expectations and may prompt the Fed to tighten monetary policy, a supportive factor for the dollar.
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US Apr existing home sales rose +0.2% m/m to 4.02 million, weaker than expectations of 4.05 million.
In the latest developments in the Middle East, President Trump and Iran rejected each other’s latest peace proposals to end the 10-week conflict. Iran offered to transfer some of its stockpile of highly enriched uranium to a third country, but rejected the idea of dismantling its nuclear facilities. Iran also demanded a lifting of the US naval blockade and sanctions relief, while maintaining a degree of control over traffic through the Strait of Hormuz.
Swaps markets are discounting the odds at 5% for a 25 bp rate cut at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) today is down by -0.04%. The euro is under pressure today amid a +2% increase in crude oil prices, which is negative for the Eurozone economy and the euro, as Europe imports most of its energy. Losses in the euro are limited after ECB Governing Council member Martin Kocher said the ECB will be forced to raise interest rates unless the situation around energy prices improves significantly.
ECB Governing Council member Martin Kocher said, “If the situation around energy prices does not improve significantly, an interest rate hike will be unavoidable in the near future.”
Swaps are discounting an 85% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) today is up by +0.25%. The yen is moving lower today amid a 2% rally in crude oil prices, which is negative for the Japanese economy and the yen as Japan imports more than 90% of its energy needs. Also, higher T-note yields today are bearish for the yen.
The markets are discounting a +75% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
June COMEX gold (GCM26) today is up +10.90 (+0.23%), and July COMEX silver (SIN26) is up +4.830 (+6.00%).
Gold and silver prices are moving higher today, with silver prices up sharply at a 2-month high. Dollar weakness today is supportive for metals prices. Also, precious metals have safe-haven support after the US and Iran failed to come to an agreement to end the war, which could lead to renewed hostilities in the Middle East.
Silver prices are soaring today as signs of economic growth support industrial metals demand, following China’s Apr exports and imports, which rose more than expected. Silver prices also have carryover support from today’s rally in copper prices to a 3.5-month high. In addition,
Limiting gains in gold today are higher global bond yields. Also, today’s +2% increase in crude oil prices boosts inflation expectations, potentially prompting the world’s central banks to tighten monetary policy, a bearish factor for precious metals. In addition, hawkish comments today from ECB Governing Council member Martin Kocher weighed on gold when he said the ECB will raise interest rates in the near future if the energy price situation does not improve.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 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 a 9-month low last Tuesday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following last Thursday’s news that bullion held in China’s PBOC reserves rose by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has boosted its gold reserves.
Chinese trade news was better than expected, a positive factor for global growth and industrial metals demand. China Apr exports rose +14.1% y/y, stronger than expectations of +8.4% y/y. Apr imports rose +25.3% y/y, stronger than expectations of 20.0% y/y.
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. This article was originally published on Barchart.com
