Dollar Moves Higher Ahead of FOMC Results

The dollar index (DXY00) today is up by +0.41%.  The dollar is moderately higher ahead of the results of today's FOMC meeting, which is expected to show the Fed keeping interest rates unchanged. Also, expectations that Fed Chair Powell will signal steady policy for the foreseeable future due to the uncertainty of US trade policy is boosting the dollar.  A rebound in stocks today has reduced some liquidity demand for the dollar. 

The markets are discounting the chances at 1% for a -25 bp rate cut after today's FOMC meeting.

EUR/USD (^EURUSD) today is down by -0.44%.  The euro is under pressure today due to a rebound in the dollar. Also, EUR/USD was undercut after Eurozone Q4 labor costs eased, and after Eurozone Feb CPI was revised downward, dovish factors for ECB policy.  In addition, today's decline in the 10-year German bund yield to a 2-week low has weakened the euro's interest rate differentials.

Eurozone Feb CPI was revised downward by -0.1 to 2.3% y/y from the previously reported 2.4% y/y.

Eurozone Q4 labor costs eased to +3.7% y/y from +4.5% in Q3, the smallest pace of increase in more than two years.

Swaps are discounting the chances at 56% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

USD/JPY (^USDJPY) today is up by +0.48%.  The yen fell to a 2-week low against the dollar today after the BOJ kept interest rates unchanged following its policy meeting.  The yen also came under pressure today from weaker-than-expected Japanese economic news on trade and Jan core machine orders. Losses in the yen are limited due to hawkish comments from BOJ Governor Ueda, who said the BOJ will raise interest rates if its economic outlook is realized.

Japan Jan core machine orders fell -3.5% m/m, weaker than expectations of -0.1% m/m, and the biggest decline in 14 months.

Japan's trade news was weaker than expected as Feb exports rose +11.4% y/y, weaker than expectations of +12.6% y/y.  Also, Feb imports unexpectedly fell -0.7% y/y versus expectations of a +0.8% y/y increase.

The BOJ kept its overnight call rate unchanged at 0.50%, as expected, and cited worries over the potential impact of US tariff policies.

BOJ Governor Ueda said the BOJ will raise interest rates if its economic outlook is realized and that "exchange rate developments are, compared to the past, more likely to affect prices."

April gold (GCJ25) today is down -4.20 (-0.14%), and May silver (SIK25) is down -0.558 (-1.60%).  Precious metals today are moderately lower.  Today's rally in the dollar knocked April gold from a contract high and nearest-futures (H25) gold from an all-time high of $3,043.00 an ounce.  Also, higher T-note yields today are undercutting precious metals. In addition, today's stock recovery has reduced safe-haven demand for precious metals.  Expectations for the FOMC to leave interest rates unchanged today and for Fed Chair Powell to signal steady Fed policy for the foreseeable future are bearish for precious metals.  Silver is under pressure from Japanese economic reports today that showed weaker-than-expected Feb trade news and the largest decline in Jan core machine orders in 14 months, negative factors for industrial metals demand.  Finally, concerns that US trade policies will undercut economic growth that reduces demand for industrial metals are negative for silver prices. 

Precious metals are supported by an increase in safe-haven demand due to ramped-up geopolitical risks in the Middle East after Israel launched a series of airstrikes across Gaza, ending a two-month ceasefire with Hamas, and after the US launched strikes on Yemen's Houthi rebels.  Also, the ongoing trade war has boosted the safe-haven demand for precious metals.  In addition, today's economic news showed an easing of wage pressures in Eurozone Q4 labor costs and the downward revision to Eurozone Feb CPI, which are dovish factors for ECB policy.  Fund buying of gold supports prices after long gold positions in ETFs rose to a 17-month high Tuesday.