The dollar index (DXY00) is sharply lower today by 1.13% at a 4-week low. The dollar is plummeting today after the US and Iran agreed to a ceasefire, curbing safe-haven demand for the dollar. Also, today’s surge in equity markets has reduced liquidity demand for the dollar. In addition, sharply lower T-note yields today have weakened the dollar’s interest rate differentials.
Swaps markets are discounting the odds at 2% 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) today is up by +0.91% at a 5-week high. Today’s plunge in the dollar is boosting the euro. Also, today’s 17% plunge in crude oil prices is positive for the euro and the Eurozone economy, as Europe imports most of its energy needs. Today’s weaker-than-expected economic news on Eurozone retail sales, producer prices, and German factory orders are bearish for the euro.
Eurozone Feb retail sales fell -0.2% m/m, right on expectations and the biggest decline in 9 months.
Eurozone Feb PPI fell -3.0% y/y, right on expectations and the biggest decline in 16 months.
German Feb factory orders rose +0.9% m/m, weaker than expectations of +3.0% m/m.
Swaps are discounting a 27% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
USD/JPY (^USDJPY) today is down by -0.08%. The yen is moving higher today, posting a 2.5-week high against the dollar. Today’s slump in the dollar and lower T-notes yields is bullish for the yen. Also, today’s economic news showing strength in Japanese earnings is hawkish for BOJ policy and supportive for the yen.
On the negative side for the yen is the larger-than-expected decline in the Japan Mar Eco Watchers Outlook Survey to a 5.25-year low. Also, today’s +5% surge in the Nikkei Stock Index to a 1-month high reduced safe-haven demand for the yen.
The Japan Mar eco watchers outlook survey fell -11.3 to a 5.25-year low of 38.7, weaker than expectations of 48.0.
