Dollar’s dominance: A Multifaceted Rally

The dollar is experiencing a significant upswing,fueled by a confluence of factors including easing trade tensions,reassuring statements from President Trump regarding the Federal Reserve Chair,and hawkish remarks from a Fed Governor. This surge is reflected in the Dollar Index (DXY00),which has climbed by +0.57% today.

Trade Winds Shifting?

President Trump’s softened stance on trade with China, suggesting a willingness to be very nice during negotiations and hinting at tariff reductions upon reaching a trade agreement, has injected optimism into the market. This potential de-escalation has reduced some of the risk aversion that typically benefits safe-haven currencies like the yen.

Powell’s Position Secure (For Now)

Adding to the dollar’s strength, President Trump’s declaration that he has no intention of dismissing Fed Chair Powell has instilled confidence in the currency. This assurance has calmed market anxieties surrounding potential disruptions to monetary policy.

Hawkish Fed Stance Reinforces Dollar’s Appeal

Further bolstering the dollar, Fed Governor Kugler voiced support for maintaining stable interest rates until inflation risks subside. This hawkish sentiment signals a commitment to controlling inflation, making the dollar more attractive to investors seeking higher yields.

Economic data exceeds Expectations

Recent economic data has also contributed to the dollar’s ascent. The US April S&P manufacturing PMI unexpectedly rose to 50.7, surpassing forecasts of a decline to 49.0. Similarly, US March new home sales jumped by +7.4% month-over-month, reaching a 6-month high of 724,000, exceeding expectations of 685,000. These positive indicators suggest a resilient US economy, further supporting the dollar.

Euro Under Pressure: Stagnation Fears and Manufacturing Gains

The euro (^EURUSD) is facing downward pressure, declining by -0.53% today, primarily due to the stronger dollar. Concerns about economic stagnation in Europe, exacerbated by the potential fallout from US tariffs, are also weighing on the currency.

Nagel’s Warning: Recession Risk Looms

ECB Governing Council member and Bundesbank President Nagel expressed concerns that Europe is in a stagnating situation due to the repercussions of US tariffs,even raising the risk of recession for Germany. These comments have dampened investor sentiment towards the euro.

Manufacturing PMI: A Glimmer of Hope?

Despite the overall negative sentiment, the Eurozone April S&P manufacturing PMI unexpectedly rose to a 2-1/4 year high of 48.7, exceeding expectations of a decline to 47.4.This positive surprise offers a glimmer of hope for the Eurozone economy, although the April S&P composite PMI fell slightly, indicating mixed economic signals.

Europe is in a stagnating situation due to fallout from US tariffs with a risk of recession for Germany.
ECB Governing Council member and Bundesbank President nagel

ECB Rate Cut Expectations Remain High

Despite the recent positive manufacturing data, market expectations for an ECB rate cut remain high. Swaps are currently pricing in an 86% chance of a -25 bp rate cut by the ECB at the June 5 policy meeting.

Yen Weakens as Dollar Strengthens and Trade Tensions Ease

The Japanese yen (^USDJPY) is also under pressure, falling by +0.71% today.The stronger dollar and easing US-china trade tensions are contributing to the yen’s weakness.

Nikkei Rally Reduces Safe-Haven Demand

The easing of US-china trade tensions has sparked a rally in the Nikkei stock Index, reaching a 3-week high. This positive market sentiment has reduced demand for the yen as a safe-haven asset.

mixed Economic Data from Japan

Recent economic data from Japan presents a mixed picture. The japan February tertiary index remained unchanged month-over-month, falling short of expectations of +0.4% m/m. Though, the Japan April Jibun Bank manufacturing PMI rose slightly to 48.5, and the April Jibun Bank services PMI increased considerably to 52.2, indicating growth in the services sector.

Precious Metals Mixed: Gold Declines, Silver Gains

Precious metals are exhibiting mixed performance today. June gold (GCM25) is down sharply by -137.30 (-4.02%), while May silver (SIK25) is up slightly by +0.060 (+0.18%).

Gold Under Pressure from Stronger Dollar and Reduced Safe-Haven Demand

gold is facing significant headwinds from the stronger dollar, which has triggered long liquidation pressures. Additionally,President Trump’s assurance regarding Fed chair Powell’s position has reduced safe-haven demand for the precious metal. The rally in stocks, fueled by optimism about a potential thaw in the US-China trade war, has further curbed demand for gold as a safe haven.

Silver Supported by Industrial Demand

Silver, on the other hand, is benefiting from stronger-than-expected April manufacturing PMI reports from the US, japan, and the Eurozone. These positive indicators suggest increased demand for industrial metals, supporting silver prices. The potential easing of US-china trade tensions is also boosting economic growth prospects and demand for industrial metals.

Geopolitical Risks Provide Underlying Support

Despite the negative factors weighing on gold, geopolitical risks in the Middle East, including the Israel-Hamas and US-Houthi conflicts, continue to provide some underlying support for precious metals as safe-haven assets.

Looking Ahead: key Economic Indicators to Watch

This week, market participants will be closely monitoring any developments in US trade policies.The release of the Fed Beige Book later today will provide further insights into the US economy. Thursday will bring the March capital goods new orders nondefense ex-aircraft and parts report (expected +0.1% m/m) and March existing home sales (expected to fall -2.8% m/m to 4.14 million). Friday will see the release of the revised University of Michigan April consumer sentiment index (expected no change at 50.8).