The dollar index (DXY00) Monday fell by -0.20%. Weaker-than-expected US economic news on Monday weighed on the dollar after February new home sales and the Mar Dallas Fed manufacturing outlook unexpectedly declined. Losses in the dollar were limited by hawkish comments from Atlanta Fed President Bostic and Fed Governor Cook, who warned about cutting interest rates too early.
The US Mar Dallas Fed manufacturing outlook survey unexpectedly fell -3.1 to 14.4, weaker than expectations of an increase to -10.0.
US Feb new home sales unexpectedly fell -0.3% m/m to 662,000, weaker than expectations of an increase to 677,000.
The US Feb Chicago national activity index rose +0.59 to 0.05, stronger than expectations of -0.34.
Atlanta Fed President Bostic said if the economy performs as expected, the Fed can be patient on interest rates, and he expects just one 25 bp rate cut this year.
Fed Governor Cook said restoring price stability may take a “cautious approach to easing monetary policy over time,” and cutting interest rates too soon could risk inflation becoming entrenched.
The markets are discounting the chances for a -25 bp rate cut at 13% for the next FOMC meeting on April 30-May 1 and 79% for the following meeting on June 11-12.
EUR/USD (^EURUSD) Monday rose by +0.28%. A weaker dollar Monday sparked some short covering in EUR/USD. Gains in the euro are limited by dovish comments from ECB Governing Council member Panetta, who said inflation across the Eurozone is falling quickly, allowing for a possible cut in interest rates.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 6% for its next meeting on April 11 and 87% for the following meeting on June 6.
USD/JPY (^USDJPY) Monday rose by +0.04%. The yen on Monday gave up an early advance and posted modest losses as strength in T-note yields undercut the yen. The yen initially moved higher Monday on speculation that Japanese authorities could soon intervene in currency markets to support the yen after top Japanese currency official Kanda said, “We will take the appropriate action against excessive fluctuations, without ruling out any options.”
The Japan Jan leading index CI was revised downward by -0.4 to 19.5 from the previously reported 109.9.
Japan’s top currency official, Kanda, said, “The current weakening of the yen is not in line with fundamentals and is clearly driven by speculation. We will take the appropriate action against excessive fluctuations without ruling out any options.”
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 4% for the April 26 meeting and 35% for the following meeting on June 14.
April gold (GCJ4) on Monday closed up +16.4 (+0.76%), and May silver (SIK24) closed up +0.048 (+0.19%). Precious metals settled moderately higher on Monday, boosted by a weaker dollar. Gold also garnered support on comments from ECB Governing Council member Panetta, who said inflation across the Eurozone is falling quickly, allowing for a possible cut in interest rates. Weakness in stocks on Monday also boosted safe-haven demand for precious metals.
On the negative side for precious metals on Monday were higher global bond yields. Also, hawkish comments Monday from Atlanta Fed President Bostic and Fed Governor Cook were bearish for gold as they cautioned against cutting interest rates too early.
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