The dollar index (DXY00) Monday fell by -0.52%.  The dollar today gave up an early advance and turned lower on economic concerns after the Apr Dallas Fed manufacturing survey of general business activity index fell more than expected to a 5-year low.  The dollar is also under pressure on concerns that the US-China trade war could drag on and weigh on US growth prospects after President Trump said the US would not lower tariffs on China unless “they give us something substantial.”  In addition, Monday’s fall in the 10-year T-note yield to a 2-1/2 week low weakened the dollar’s interest rate differentials.

The dollar on Monday initially moved higher on comments from US Treasury Secretary Bessent, who said the US is working on bilateral trade deals with 17 key trading partners, not including China. 

The US Apr Dallas Fed manufacturing survey of general business activity index fell -19.5 points to a 5-year low of -35.8, weaker than expectations of -17.0.

The markets are discounting the chances at 9% for a -25 bp rate cut after the May 6-7 FOMC meeting, down from a 30% chance last week.

EUR/USD (^EURUSD) Monday rose by +0.49%.  The euro on Monday recovered from early losses and moved higher after the dollar weakened.  The euro initially moved lower Monday on some dovish ECB comments.  ECB Governing Council member Villeroy de Galhau said the ECB has room to cut interest rates, and ECB Governing Council member Rehn said he sees downside risks in the ECB’s March inflation forecasts. 

ECB Governing Council member Villeroy de Galhau said the ECB has room to lower interest rates as the trade war triggered by US tariffs will weigh on the global economy but won’t affect the inflation trend in Europe.

ECB Governing Council member Rehn said that due to the fallout from US tariffs, “I find it reasonable to assume that there are downside risks to the inflation outlook in the ECB’s March projections.”

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

USD/JPY (^USDJPY) Monday fell by -1.11%.  The yen rallied on Monday due to short covering ahead of Thursday’s BOJ policy meeting.  Also, lower T-note yields on Monday were supportive of the yen.  On the negative side, Monday’s rally in the Nikkei Stock Index to a 4-week high reduced safe-haven demand for the yen.  In addition, Monday’s statement from the BOJ that it will purchase government bonds in May at the same pace as April was bearish for the yen as it damped speculation the BOJ, in a hawkish move, would cut its bond purchases. 

June gold (GCM25) Monday closed up +49.30 (+1.49%), and May silver (SIK25) closed down -0.005 (-0.02%).  Precious metals prices on Monday settled mixed.  Monday’s weaker dollar and lower T-note yields supported precious metals prices.  Gold also rallied Monday on dovish ECB comments.   ECB Governing Council member Villeroy de Galhau said the ECB has room to lower interest rates, and ECB Governing Council member Rehn said there are downside risks to the ECB’s March inflation outlook. Concern the US-China trade war will persist and undercut global economic growth is boosting safe-haven demand for gold and undercutting silver after President Trump said the US would not lower tariffs on China unless “they give us something substantial.” Geopolitical risks in the Middle East are boosting safe-haven demand for precious metals as the Israel-Hamas and the US-Houthi conflicts continue.