The US dollar index (DXY) has recorded a slight increase of 0.09% today. This rise in the dollar is largely attributed to renewed optimism surrounding US trade negotiations. President Trump indicated that American negotiators have made substantial headway with their Japanese counterparts concerning a trade agreement. Furthermore, the dollar gained traction after a drop in weekly jobless claims to the lowest they’ve been in two months, suggesting robustness in the labor market. Additionally, New York Fed President John Williams remarked that the US economy is currently in a strong position. Despite these positive signals, the dollar’s gains were moderated by a larger-than-anticipated decrease in March housing starts and a decline in the April Philadelphia Fed business outlook survey, hitting a two-year low.
In terms of jobless claims, recent data revealed an unexpected drop of 9,000, bringing the initial unemployment claims down to 215,000—much lower than the projected increase to 225,000. Meanwhile, March housing starts fell by 11.4% month-over-month to 1.324 million, trailing predictions that had anticipated 1.420 million. On a more positive note, building permits surged 1.6% month-over-month in March to 1.482 million, exceeding expectations that estimated a decline to 1.450 million. However, the Philadelphia Fed’s business outlook survey saw a significant drop of 38.9 points, landing at a negative 26.4, which was well below expectations.
John Williams signaled confidence in the economy and indicated no immediate need for adjustments to the federal funds rate. According to current market assessments, the probability of a 25 basis point rate cut after the upcoming FOMC meeting on May 6-7 has decreased to 14%, down from a previous estimate of 30%.
The euro (EUR/USD) has faced a decline of 0.20% today, pressured by the European Central Bank’s (ECB) decision to cut interest rates by 25 basis points and remove the term “restrictive” from its monetary policy language. A decrease in inflationary pressure across the Eurozone, highlighted by a decline in German producer prices—the most significant drop in five months—has contributed to this dovish stance from the ECB. Christine Lagarde, the ECB President, communicated that risks to economic growth have escalated.
German producer prices (PPI) in March dropped by 0.2% on a year-over-year basis, falling short of estimates that predicted an increase of 0.4%. The ECB’s decisions, including the cut in the deposit facility rate from 2.50% to 2.25%, and the revised outlook indicate a growing concern over trade tensions that could affect the Eurozone economy. The market is now pricing in an 89% probability of another rate cut by the ECB in the upcoming June policy meeting.
In the currency pair USD/JPY, an increase of 0.11% is being observed today. The yen has weakened after reaching a six-and-a-half-month high against the dollar, largely due to diminished demand for safe-haven currencies following news of significant progress in US-Japan trade negotiations. Disappointing trade data from Japan for March has further pressured the yen, and comments from Japan’s chief trade negotiator, indicating no discussion of currency values in the trade talks, have alleviated concerns regarding potential US pressure for a stronger yen.
The Bank of Japan (BOJ) Governor, Kazuo Ueda, has also hinted at a potential pause in interest rate hikes, expressing a need to carefully evaluate economic conditions and inflation before making policy decisions. This statement has contributed to the yen’s decline.
When it comes to precious metals, June gold contracts are down by $21.90, or 0.65%, with May silver down by $0.505, showing a decline of 1.53%. The prices of these metals have been influenced by a reduced demand for safe havens as optimism grows regarding trade agreements following President Trump’s announcement of progress in negotiations with Japan. Additionally, the dollar’s strength is impacting the prices of precious metals, despite recent dovish comments from ECB President Lagarde and ongoing concerns over geopolitical tensions, such as conflicts in the Middle East, which continue to provoke safe-haven buying in these assets. Fund activity in gold has shown an uptick, with long positions in ETFs reaching a one-and-a-half-year high recently.
