The dollar index (DXY00) is moving lower today and is down by -0.28%. Today’s -3% plunge in WTI crude oil prices has lowered inflation expectations and could prompt the Fed to pursue easier monetary policy, a bearish factor for the dollar. Also, lower T-note yields today weaken the dollar’s interest rate differential and are negative for the dollar.
The dollar recovered from its worst level today on better-than-expected US economic news. The Apr trade deficit eased to -$55.9 billion from -$56.6 billion in Mar, narrower than the -$56.1 billion expected. Also, May existing home sales rose +3.2% m/m to a 5-month high of 4.17 million, stronger than expectations of 4.07 million.
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President Trump today predicted a swift end to the war with Iran and a subsequent fall in oil prices, and said, “We’re in the final throes of what will be a very, very good deal, and that they could have at least an idea one or two days from now” about the deal.
The swaps markets are discounting the odds at +3% for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) today is up by +0.29%. The euro is moving higher today amid a weaker dollar. Also, an as-expected increase in German Apr industrial production and better-than-expected German Apr trade news are supportive for the euro. In addition, today’s -3% fall in crude oil prices is positive for the Eurozone economy and the euro as Europe imports most of its energy.
German Apr industrial production rose +0.4% m/m, right on expectations and the biggest increase in five months.
German trade news was better than expected as Apr exports unexpectedly rose +0.9% m/m, stronger than expectations of a-0.5% m/m decline. Also, Apr imports unexpectedly rose +1.2% m/m versus expectations of a -2.0% m/m decline.
The markets are discounting a +100% chance for a +25 bp rate hike by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) today is up by +0.02%. The yen is slightly lower today after a +2% rally in the Nikkei Stock Index curbed safe-haven demand for the yen. Losses in the yen are limited amid today’s -3% decline in crude oil prices, which is positive for Japan’s economy and the yen as Japan imports more than 90% of its energy. Also, today’s hawkish report from Nikkei is bullish for the yen as it stated the BOJ is set to raise its policy rate by 25 bp to 1.00% at next week’s policy meeting.
