The dollar index (DXY00) Wednesday rose by +0.48%. The dollar posted moderate gains on Wednesday on hopes of easing US-China trade tensions after the two countries agreed to trade talks this weekend for the first time since President Trump imposed tariffs on US trading partners. Also, Wednesday’s US economic news supported the dollar after Mar consumer credit rose more than expected. The dollar raced to its high Wednesday afternoon when the FOMC kept interest rates unchanged, and Fed Chair Powell said, “I don’t think we need to be in a hurry to adjust interest rates.”
US Treasury Secretary Bessent and US Trade Representative Greer will travel to Switzerland for trade talks on Saturday and Sunday with Chinese Vice Premier He Lifeng. Bessent said the talks focus on de-escalating the tariff standoff between the two countries. He added that the current tariff rates aren’t sustainable and are equivalent to a trade embargo.
US Mar consumer credit rose by +$10.172 billion, stronger than expectations of +$9.387 billion.
The FOMC, as expected, kept its federal funds target range unchanged at 4.25%-4.50% and said, “Uncertainty about the economic outlook has increased further. The committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.” The FOMC added that economic activity continued to expand at a “solid pace” and inflation “remains somewhat elevated.”
Fed Chair Powell said, “I don’t think we need to be in a hurry to adjust interest rates” and that for the time being, the Fed is well positioned to wait for clarity on trade policy.
The markets are discounting the chances at 23% for a -25 bp rate cut after the June 17-18 FOMC meeting.
EUR/USD (^EURUSD) Wednesday fell by -0.49%. The euro posted moderate losses on Wednesday as the dollar strengthened ahead of US-China trade talks this weekend. Wednesday’s news that Eurozone Mar retail sales fell for the first time in 5 months is also bearish for the euro. Losses in the euro accelerated after the dollar raced to its high when Fed Chair Powell said the Fed was in no hurry to adjust interest rates.
Eurozone Mar retail sales fell -0.1% m/m, right on expectations and the first decline in 5 months.
German Mar factory orders rose +3.6% m/m, stronger than expectations of +1.3% m/m.
Swaps are discounting the chances at 96% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Wednesday rose by +0.95%. The yen posted moderate losses on Wednesday and was under pressure as an easing of US-China trade tensions has reduced safe-haven demand for the yen after the US and China agreed to meet for trade negotiations for the first time since President Trump imposed tariffs on US trading partners. Wednesday’s hawkish pause in interest rates by the FOMC strengthened the dollar and also weighed on the yen. Wednesday’s upward revision to the Japan Apr Jibun Bank services PMI supported the yen.
The Japan Apr Jibun Bank services PMI was revised upward by +0.2 to 52.4 from the previously reported 52.2.
June gold (GCM25) Wednesday closed down -30.90 (-0.90%), and July silver (SIN25) closed down -0.590 (-1.72%). Precious metals prices on Wednesday gave up early gains and settled moderately lower, with gold falling from a 2-week high and silver falling from a 1-week high. The easing of US-China trade tensions boosted the dollar Wednesday and sparked long liquidation in precious metals after both countries agreed to meet this weekend in Switzerland for trade negotiations. Also, precious metals prices were pressured after the FOMC kept interest rate unchanged and a hawkish tone from Fed Chair Powell, who said, “I don’t think we need to be in a hurry to adjust interest rates.”
Precious metals Wednesday initially moved higher on the increase in safe-haven demand due to escalating geopolitical risks in South Asia after India conducted military strikes against Pakistan in response to a militant attack in Kashmir. Pakistan called India’s actions an “act of war” and said it reserves the right to retaliate. Also, the ongoing global trade turmoil caused by the US tariff policy has boosted the safe-haven demand for precious metals. In addition, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas conflict continues and as Israel launched an airstrike on the Houthi-controlled airport and a power station in Sanaa, Yemen’s capital, in retaliation for a Houthi missile strike against Israel last weekend.
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.
