The dollar index (DXY00) fell from a 6-week high today and is down by -0.09%. The dollar gave up an early advance today and moved lower after crude oil prices fell by more than -2%, which lowered inflation expectations and could prompt the Fed to ease monetary policy, a negative for the dollar. Also, today’s stock rally has reduced liquidity demand for the dollar. The dollar initially moved higher today on an increase in safe-haven demand after President Trump threatened to resume strikes on Iran in the coming days as part of the push for a deal to end the war.
Swaps markets are discounting the odds at 7% for a 25 bp rate cut at the next FOMC meeting on June 16-17.
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EUR/USD (^EURUSD) recovered from a 6-week low today and is up +0.12%. Short covering emerged in the euro today after the dollar gave up an early advance and turned lower. The euro also rose today after crude oil prices fell more than -2%, which is bullish for the Eurozone economy and the euro, as Europe imports most of its energy needs.
ECB Governing Council member Pierre Wunsch said, “If the Iran conflict isn’t resolved by June, then I think the likelihood of an ECB rate hike is quite high.”
Swaps are discounting an 83% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.
USD/JPY (^USDJPY) today is down by -0.09%. The yen is slightly higher today amid lower T-note yields. Also, today’s -2% fall in crude oil prices benefits Japan’s economy and the yen, as Japan imports more than 90% of its energy. In addition, the yen found support on comments today from Japanese Finance Minister Satsuki Katayama, who indicated her resolve to intervene in the foreign exchange market to support the yen. 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.
Japanese Finance Minister Satsuki Katayama said, “We have understanding” from our G-7 counterparts, that “we will take bold action as needed” to prop up the yen.
The markets are discounting a +81% chance of a 25 bp BOJ rate hike at the next policy meeting on June 16.
