The dollar index (DXY00) today is up by +0.07%. The dollar is slightly higher today after the US March trade deficit was reported to be smaller than expected. The dollar also has safe-haven support as the US-Iran ceasefire appears shaky after the US Central Command on Monday said the US military fought off attacks from Iranian drones, missiles, and armed small boats as it facilitated the passage of two US-flagged vessels through the Strait of Hormuz. Today's US economic news was mixed for the dollar: Mar new home sales and Mar JOLTS job openings were better than expected, but Apr ISM services activity was weaker than expected.
Gains in the dollar are limited today amid a -3% decline in crude oil prices, which ease inflation expectations and could prompt the Fed to pursue a dovish, dollar-negative monetary policy. Also, today's stock strength has dampened liquidity demand for the dollar.
Heightened US-Iran tensions are boosting demand for the dollar as a safe-haven. The US and Iran are locked in a battle for control of the Strait of Hormuz, with both sides blocking the waterway to gain leverage during an extended ceasefire.
The US Mar trade deficit widened to -$60.3 billion from -$57.8 billion in Feb, narrower than expectations of -$61.0 billion.
The US Apr ISM services index fell -0.4 to 53.6, slightly weaker than expectations of 53.7. Apr ISM prices paid were unchanged at 70.7, weaker than expectations of an increase to 73.5.
US Mar new home sales rose +7.4% m/m to 682,000, stronger than expectations of 652,000.
The US Mar JOLTS job openings fell -56,000 to 6.866 million, a smaller decline than expectations of 6.850 million.
Swaps markets are discounting the odds at 7% for a 25 bp rate cut at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) today is up +0.08%. Today's 3% plunge in crude oil prices is positive for the Eurozone economy and the euro, as Europe imports most of its energy. However, today's stronger dollar is limiting gains in the euro.
Swaps are discounting a 93% 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 +0.33%. The yen is under pressure today from a stronger dollar. Also, today's strength in equity markets has reduced the yen's safe-haven appeal. Losses in the yen are limited with today's -3% fall in crude oil prices, which is positive for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs. Trading activity may be below normal today, as markets in Japan are closed for the Children's Day holiday.
The markets are discounting a +64% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
June COMEX gold (GCM26) today is up +50.10 (+1.11%), and July COMEX silver (SIN26) is up +0.448 (+0.61%).
Gold and silver prices are moving higher today, as the -3% decline in crude oil prices eases inflation expectations and could persuade the world's central banks to pursue easier monetary policies, a bullish factor for precious metals. Also, heightened Middle East tensions are positive for safe-haven demand of precious metals as both the US and Iran are maintaining blockades of the Strait of Hormuz. Today's stronger dollar is limiting the upside in metals prices. Also, today's strength in socks has curbed safe-haven demand for precious metals.
Precious metals also remain supported by uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty, which are boosting demand for precious metals as a store of value.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 4.5-month low on March 31 after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to an 8.75-month low on Monday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is supportive of gold prices, following the recent news that bullion held in China's PBOC reserves rose by +160,000 ounces to 74.38 million troy ounces in March, the seventeenth consecutive month the PBOC has boosted its gold reserves.
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. For more information please view the Barchart Disclosure Policy here.
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