US dollar wallows at three-year nadir before remarks by Fed officials
The US dollar fell in European trade on Monday against a basket of major rivals, on track for the third loss in a row, almost touching three-year lows amid concerns about US recession to President Donald Trump’s aggressive tariffs.
Now investors await important remarks by Fed officials later today, looking for clues on the future path of US interest rates.
The Index
The dollar index fell 0.6% today to 99.21, with a session-high at 100.07.
On Friday, the index slid 1.15%, plumbing three-year lows at 99.01 after forecast-missing producer prices data.
The index lost 3% last week, the third weekly loss in a row amid a selloff wave as investors worry about a potential US recession to the trade war with China.
US Assets
Confidence in the US economy tumbled, prompting investors to dump US assets in favor of other safe havens such as the Swiss franc and gold.
Recent US data showed inflation slowed down more than expected in March, reducing the pressure on Fed’s policymakers.
Following the data, the odds of a Fed 0.25% rate cut in May rose from 15% to 25%, while the odds of such a cut in June rallied to 85%.
Now traders await a batch of remarks by several Fed officials today, including Deputy Chair Christopher Waller to gather more clues.
Gold backs off record high on profit-taking
Gold prices fell in European trade on Monday for the first time in four days away from recent record highs scaled in Asian trading, amid active profit-taking.
The precious metal will test the historic barrier at $3200, with the losses contained by the weaker dollar against major rivals ahead of remarks by Fed officials later today.
The Price
Gold prices fell 1% today to $3206 an ounce, with a record high at $3245.
On Friday, gold rose 2%, the third profit in a row.
Gold prices rallied 6.6% last week, the largest weekly profit since March 2020 on surging haven demand amid the escalating US-China trade war.
The US Dollar
The dollar index fell 0.6% on Monday, extending its losses for the third straight session and about to plumb three-year lows at 99.01 against a basket of major rivals.
The dollar’s weakness comes as investors flee US assets with sentiment souring towards the US economy overall due to Trump’s aggressive tariffs.
US Rates
Recent US data showed inflation slowed down more than expected in March, reducing the pressure on Fed’s policymakers.
Following the data, the odds of a Fed 0.25% rate cut in May rose from 15% to 25%, while the odds of such a cut in June rallied to 85%.
SPDR
Gold holdings at the SPDR Gold Trust ose 3.44 tons yesterday to a total of 953.15 tons, the highest since September 20, 2022.
Euro advances towards three-year highs
The euro rose in European trade on Monday against a basket of major rivals, heading for the third straight profit in a row against the dollar and trading near three-year highs after the EU suspended its retaliatory tariffs on US products for 90 days.
The EU is currently engaging in intensive trade negotiations with the US, with the European Central Bank monitoring the situation closely to intervene with various monetary tools if negotiations fail.
The Price
The EUR/USD price rose 0.45% today to $1.1409, with a session-low at $1.1315.
The euro rallied 1.45% on Friday against the dollar, hitting three-year highs at $1.1474 as the EU suspended retaliatory tariffs.
The euro surged 3.6 % last week, the third weekly profit in a row on hopes for a trade deal between the EU and the US.
Retaliatory Tariffs Paused
The European Commission paused the first batch of retaliatory tariffs on US goods for 90 days and engaged in negotiations with the US.
It comes after US President Donald Trump suspended global reciprocal tariffs for the same duration.
European Commission President Ursula von der Leyen said the EU wants to give negotiations a real chance but maintained their capability of activating counter measures if talks failed to produce results.
Der Leyen said the EU offered the US “zero for zero” tariff deal to avoid a trade war.
European Economy Stimulus
According to sources, the EU is working on a package of emergency measures to boost parts of the economy that were particularly hit by the threat of US tariffs.
Otherwise, European Central Bank President Christine Lagarde said the ECB is ready to use all its tools to maintain financial stability in times of crisis.
Yen trades near seven-month peak on bullish remarks
The Japanese yen rose in Asian trade on Monday against major rivals, maintaining gains for the third straight session against the dollar, and about to hit seven-month highs on haven demand.
It comes following bullish remarks from some policymakers in Japan’s governing party, who are seeking a strong local currency to reduce living costs for households.
Some Japanese government policymakers also advised not to deliberately sell US treasury bonds in response to Trump’s tariffs.
The Price
The USD/JPY fell 1% today to 142.25 yen per dollar, with a session-high at 144.05.
The yen rose 0.7% on Friday against the greenback, hitting a seven-month high at 142.05 on concerns about the global trade war.
The yen rose 2.4% last week on the dollar, the second weekly profit in a row on haven demand.
Bullish Remarks
Officials from the Democratic Liberal Party in Japan expressed desire to strengthen the yen and boost the competitiveness of Japanese exports.
They called on the government not to weaponize its holdings of US treasury bonds in response to President Donald Trump’s aggressive tariffs.
Trade Negotiations
Bilateral US-Japan trade talks will take place this week and will cover many issues, including the currency’s weakness.
According to Reuters sources, the current slow pace of Bank of Japan interest rate hikes could be criticized by the US side.
Japanese Rates
Amid mounting risks facing the Japanese economy, and especially the aggressive US tariffs, traders reduced the odds of another BOJ rate hike this year to nearly zero.
US Rates
Recent US data showed inflation slowed down more than expected in March, reducing the pressure on Fed’s policymakers.
Following the data, the odds of a Fed 0.25% rate cut in May rose from 15% to 25%, while the odds of such a cut in June rallied to 85%.
Interest Rate Gap
The current US-Japan interest rate gap is standing at 400 basis points in favor of the US, and will likely shrink to 375 basis points in the first half of the year, underpinning the yen against the greenback.