Dollar Pressured by Sliding Bond Yields and Rising Stocks

The dollar index (DXY00) fell by -0.26% on Tuesday and posted a 6-week low.  The dollar came under pressure on Tuesday amid easing geopolitical concerns that knocked bond yields lower and sparked a rally in stocks.  The US and Iran are in discussions on holding additional negotiations to extend a two-week ceasefire that expires on April 22.  The New York Post reported that President Trump said talks could resume "over the next two days" in Pakistan.  The dollar extended its losses on Tuesday after US March producers rose less than expected.

US Mar PPI final demand rose +0.5% m/m and +4.0% y/y, weaker than expectations of +1.1% m/m and +4.6% y/y.  Mar PPI ex-food and energy rose +0.1% m/m and +3.8% y/y, weaker than expectations of +0.4% m/m and +4.1% y/y.

Swaps markets are discounting the odds at 1% 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) rose by +0.29% on Tuesday and posted a 6-week high.  The euro rallied on Tuesday amid weakness in the dollar.  Also, Tuesday's 7% plunge in crude oil prices is supportive of the Eurozone economy and the euro, as Europe imports most of its energy.

ECB President Christine Lagarde said the Eurozone economy is "between the baseline and the adverse" projections in the ECB's base case, reflecting the war in Iran.

ECB Governing Council member Olli Rehn said faster inflation due to the Iran war doesn't make an interest rate hike "self-evident."

Swaps are discounting a 28% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.

USD/JPY (^USDJPY) on Tuesday fell by -0.36%.  The yen rose on Tuesday amid broader dollar weakness. The yen also garnered support Tuesday after Japan's February industrial production was revised upward.  In addition, Tuesday's 7% decline in crude oil prices is positive for the Japanese economy and the yen, as Japan imports more than 90% of its energy needs.

Japan's Feb industrial production was revised upward by +0.1 to -2.0% m/m from the previously reported -2.1% m/m. 

Bloomberg reports that BOJ officials are likely to raise their inflation forecast sharply and lower their economic growth forecast at their policy meeting this month to reflect elevated oil prices.

The markets are discounting a +36% chance of a 25 bp BOJ rate hike at the next meeting on April 28.

June COMEX gold (GCM26) on Tuesday closed up +82.70 (+1.73%), and May COMEX silver (SIK26) closed up +3.868 (+5.11%).

Gold and silver prices rallied sharply on Tuesday, with silver posting a 3.5-week high.  Tuesday's slump in the dollar index to a 6-week low is bullish for metals prices.  Also, optimism for a negotiated end to the US-Iran war knocked crude oil prices down by more than 7% on Tuesday, easing concerns about inflation that could prompt the world's central banks to pursue easier monetary policies, a bullish factor for precious metals.  

Precious metals still have safe-haven support over concerns about the escalation of the US-Iran war after President Trump ordered a full naval blockade of the Strait of Hormuz.  Also, 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 4-month low on March 31 after climbing to a 3.5-year high on February 27.  Also, long holdings in silver ETFs fell to a 7-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.