Dollar Slips on Weaker-Than-Expected US Economic News

The dollar index (DXY00) today is down by -0.26%.  Today’s report showing a smaller-than-expected increase in US March consumer prices is weighing on the dollar.  Also, today’s stock rally has reduced liquidity demand for the dollar.  In addition, hopes that this weekend’s negotiations between the US and Iran will lead to peace are reducing safe-haven demand for the dollar.  Losses in the dollar accelerated today after the University of Michigan’s US Apr consumer sentiment index fell more than expected to a record low.

US Mar CPI rose +3.3% y/y, the biggest increase in two years, but below expectations of +3.4% y/y.  Mar core CPI rose +2.6% y/y, below expectations of +2.7% y/y.
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US Feb factory orders were unchanged m/m, stronger than expectations of a -0.2% m/m decline.

The University of Michigan US Apr consumer sentiment index fell -5.7 to a record low of 47.6 (data since 1978), weaker than expectations of 51.5.

The University of Michigan US Apr 1-year inflation expectations rose to an 8-month high of4.8%, stronger than expectations of 4.2%.  The Apr 5-10 year inflation expectations rise to a 5-month high of 3.4%, right on expectations.

Swaps markets are discounting the odds at 2% for a +25 bp rate hike at the April 28-29 FOMC meeting.

The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026. 

EUR/USD (^EURUSD) climbed to a 5-week high today and is up by +0.31%.  Dollar weakness today is supportive of the euro.  Also, higher government bond yields are bullish for the euro, as the 10-year German Bund yield is up +6 bp today to 3.05%. 

Swaps are discounting a 31% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.

USD/JPY (^USDJPY) today is up by +0.10%.  The yen is slightly lower today after the Nikkei Stock Index rallied to a 5-week high, which reduced safe-haven demand for the yen. Also, higher T-note yields today are bearish for the yen.  Losses in the yen are limited after Japan’s March producer prices rose more than expected, a hawkish factor for BOJ policy.

Japan Mar PPI rose +0.8% m/m and +2.6% y/y, stronger than expectations of +0.7% m/m and +2.3% y/y.

The markets are discounting a +55% chance of a 25 bp BOJ rate hike at the next meeting on April 28.

June COMEX gold (GCM26) today is down -18.20 (-0.38%), and May COMEX silver (SIK26) is down -0.048 (-0.06%).

Gold and silver prices are moving lower today as strength in stocks has reduced safe-haven demand for precious metals.  Also, higher global bond yields today are weighing on precious metals prices.  In addition, today’s report that showed US Mar CPI rose by the most in two years may prompt the Fed to tighten monetary policy, a negative factor for precious metals.  Finally, hopes that this weekend’s negotiations between the US and Iran will lead to a diplomatic resolution to the war have curbed some safe-haven demand for precious metals. 

Precious metals losses are limited today due to a weaker dollar.  Precious metals also continue to see strong safe-haven demand amid the ongoing war in Iran.  In addition, uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty 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 3.75-month low last Tuesday after climbing to a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to a 6.5-month low on March 27 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.