The dollar index (DXY00) Monday fell by -0.49% and is just above last Friday’s 3-year low. The dollar posted moderate losses Monday as a stock rebound curbed liquidity demand for the dollar. The dollar is also facing a confidence crisis as the US trade war diminishes the dollar’s reserve-currency status and has prompted some foreign investors to liquidate their dollar assets. The dollar extended its losses Monday after Fed Governor Waller said that if the inflation impact from tariffs is temporary, then Fed rate cuts would be on the table later this year. The dollar did find some support Monday on a slight easing of tariff tensions after President Trump temporarily excluded most consumer electronics from reciprocal tariffs.
On Monday, Fed Governor Waller said he expects the impact of tariffs on inflation to be temporary and in that case, interest rate cuts would “very much” be on the table for the latter half of 2025.
The markets are discounting the chances at 19% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.
EUR/USD (^EURUSD) Monday rose by +0.06% as it consolidated below last Friday’s 3-year high. The dollar’s weakness on Monday benefited the euro. The euro also has support on hopes that President Trump’s pause on reciprocal tariffs will keep the Eurozone economy from falling into recession and reduce expectations on how much the ECB needs to keep easing monetary policy. Gains in the euro on Monday were limited by expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting.
Swaps are discounting the chances at 96% for a -25 bp rate cut by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) Monday fell by -0.42%. The yen on Monday posted moderate gains and is just below last Friday’s 6-1/2 month high against the dollar. The yen found support Monday after Kyodo News reported that Prime Minister Ishiba will request a supplementary budget draft for fiscal 2025 as early as this week in response to President Trump’s tariffs and rising prices. Also, higher government bond yields support the yen as the 10-year JGB bond yield climbed to a 1-1/2 week high Monday at 1.421%. In addition, lower T-note yields on Monday were supportive of the yen. Gains in the yen were limited on reduced safe-haven demand for the yen as stocks rallied after President Trump paused reciprocal tariffs on most consumer electronics.
Japan Feb industrial production was revised downward by -0.2 to 2.3% m/m from the previously reported +2.5% m/m.
June gold (GCM25) Monday closed down -18.30 (-0.56%), and May silver (SIK25) closed up +0.257 (+0.81%). Precious metals on Monday settled mixed, with silver climbing to a 1-week high. Monday’s weaker dollar was supportive of metals prices. Silver also garnered support Monday after President Trump temporarily paused tariffs on consumer electronics, a positive factor for industrial metals demand. Precious metals also have support as a store of value on expectations for the ECB to cut interest rates by 25 bp at Thursday’s policy meeting. Fund buying of gold supports prices after long gold positions in ETFs rose to a 1-1/2 year high last Friday.
The escalation of the US-China trade war is boosting safe-haven demand for precious metals after China last Friday raised tariffs on all US goods to 125% from 84% in retaliation for the US raising tariffs on Chinese goods to 145%. Also, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals after the Israel-Hamas ceasefire broke down and as the US continues strikes on Yemen’s Houthi rebels.
Gold prices fell back Monday on reduced safe-haven demand for gold after stocks rallied as tariff concerns temporarily eased when President Trump paused reciprocal tariffs on most consumer electronics. Gains in silver are limited by concern that an escalation of the trade war could derail the global economy and the demand for industrial metals.
