Dollar Edges Higher and Gold Slumps as T-note Yields Soar

The dollar index (DXY00) today is up by +0.17%.  The dollar is moving higher today as higher T-note yields are strengthening the dollar's interest rate differentials.  The 10-year T-note yield jumped to a 16-month high today of 4.685%.  Also, weakness in stocks today is boosting liquidity demand for the currency.  In addition, the ongoing US-Iran war is boosting demand for the dollar as a safe haven.  The dollar added to its gains today on the stronger-than-expected Apr pending home sales report.

US Apr pending home sales rose +1.4% m/m, stronger than expectations of +1.0% m/m.  Also, Mar lending home sales were revised upward to +1.7% m/m from the previously reported +1.5% m/m.

Swaps markets are discounting the odds at 4% for a 25 bp rate cut at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) fell to a 1.25-month low today and is down -0.52%.  The dollar's strength today is weighing on the euro.  On the positive side for the euro is today's hawkish comments from ECB Governing Council member Nagel, who said the ECB may "have to do something" at its June meeting if the Iran energy shock persists.

ECB Governing Council member and Bundesbank President Joachim Nagel said the ECB may "have to do something" at its June meeting amid the Iran energy shock, as the probability is rising that inflation will spread.

Swaps are discounting a 90% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.

USD/JPY (^USDJPY) today is up by +0.23%.  The yen slid to a 2.5-week low against the dollar today amid strength in T-note yields.  Losses in the yen are limited after today's stronger-than-expected Japan Q1 GDP report bolstered the chances of the BOJ raising interest rates.  Also, the closer the yen falls to 160 per dollar, the greater the likelihood of Japanese authorities intervening in forex markets to prop up the yen, as they have done several times recently when the yen fell below that level.

Japan Q1 GDP rose +2.1% (q/q annualized), stronger than expectations of +1.7%.  The Q1 GDP deflator rose +3.4%y/y, stronger than expectations of +3.1% y/y. 

The Japan Mar tertiary industry index fell -0.2% m/m, a smaller decline than expectations of -0.5% m/m.

Japan Mar industrial production was revised upward by +0.1 to -0.4% m/m from the previously reported -0.5% m/m.

The markets are discounting a +76% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.

June COMEX gold (GCM26) today is down -60.20 (-1.32%), and July COMEX silver (SIN26) is down -2.844 (-3.673%).

Gold and silver prices are plummeting today, with gold at a 7-week low and silver at a 1.5-week low.  Today's jump in T-note yields is bearish for precious metals.  Also, today's stronger dollar is weighing on metals prices.  In addition, hawkish comments today from ECB Governing Council member Nagel are weighing on precious metals prices when he said the ECB may "have to do something" at its June meeting as the Iran energy shock persists. 

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 5.25-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 9.25-month low on May 5 after rising to a 3.5-year high on December 23.

Strong central bank demand for gold is supportive of gold prices, following the most recent news that bullion held in China's PBOC reserves rose by +260,000 ounces to 74.64 million troy ounces in April, the largest monthly increase in a year and the eighteenth consecutive month the PBOC has boosted its gold reserves.