The dollar index (DXY00) on Wednesday fell by -0.28%.  The dollar was under pressure Wednesday due to a decline in T-note yields.  Also, the euro's strength Wednesday undercut the dollar based on hawkish comments from ECB President Lagarde and ECB Governing Council member Holzmann.  Losses in the dollar were contained as expectations for Fed rate cuts have fallen.  According to federal funds futures contracts, the chance of a Fed rate cut at the June FOMC meeting has dropped to 19% from 66% at the start of the month. 

The Fed Beige Book said the US economy has "expanded slightly" since late February, and firms have reported greater difficulty in passing on higher costs.  Also, "several reports mentioned weakness in discretionary spending, as consumers' price sensitivity remained elevated."

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 19% for the following meeting on June 11-12.

EUR/USD (^EURUSD) Wednesday rose by +0.44%.  A weaker dollar on Wednesday was bullish for the euro. EUR/USD added to its gains Wednesday on hawkish ECB comments.  ECB President Lagarde said, “We are seeing signs of recovery” in the Eurozone. Also, ECB Governing Council member Holzmann said he's "not fully" convinced that the ECB should start cutting interest rates in June. 

ECB President Lagarde said output in the Eurozone is "recovering, and we are clearly seeing signs of recovery."

ECB Governing Council member Centeno said, "It's time for the ECB to change this monetary policy" due to weak economic growth and progress on disinflation. 

ECB Governing Council member Holzmann said he's "not fully" convinced that the ECB should start cutting interest rates in June, citing the results of Eurozone pay discussions and rising tensions in the Middle East that pose risks for inflation.

Swaps are discounting the chances for a -25 bp rate cut by the ECB at 86% for its next meeting on June 6.

USD/JPY (^USDJPY) on Wednesday fell by -0.24%.  The yen on Wednesday moved higher against the dollar after the Nikkei Stock index fell to a 2-month low, which sparked some safe-haven demand for the yen.  Also, Wednesday’s jump in the 10-year JGB bond yield to a 5-month high of 0.891% strengthened the yen’s interest rate differentials.  The yen added to its gains Wednesday after T-note yields declined. Finally, the market is wary of Japanese authorities intervening in the forex market to support the yen after it tumbled to a new 33-year low against the dollar on Tuesday.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 1% for the April 26 meeting and 37% for the following meeting on June 14.

June gold (GCM4) on Wednesday closed down -19.40 (-0.81%), and May silver (SIK24) closed up +0.024 (+0.08%).  Precious metals Wednesday settled mixed.  Gold was under pressure Wednesday from hawkish ECB comments.  ECB President Lagarde said output in the Eurozone is "recovering, and we are clearly seeing signs of recovery, "and ECB Governing Council member Holzmann said he's "not fully" convinced that the ECB should start cutting interest rates in June.  Gold also has some negative carryover from Tuesday when Fed Chair Powell said it may be “appropriate” to keep restrictive monetary policy in place until the labor market and inflation cools.  In addition, funds continue to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-1/2 year low Tuesday. 

Weakness in the dollar Wednesday was bullish for metals.  Also, Wednesday's decline in US and European government bond yields supported precious metals.  In addition, concerns about escalating geopolitical tensions in the Middle East continue to support safe-haven demand for precious metals.  Silver had carryover support from Wednesday’s +0.84% rally in copper prices after Goldman Sachs said it sees a “very significant” refined copper deficit this year.

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