The dollar index (DXY00) on Wednesday rose by +0.13%.  Higher T-note yields Wednesday supported modest gains in the dollar.  Also, hawkish comments from Boston Fed President Collins were bullish for the dollar when she said interest rates will likely need to be held higher for longer to reduce price pressures.

US Mar wholesale trade sales unexpectedly fell -1.3% m/m, weaker than expectations of a +0.8% m/m increase.

Boston Fed President Collins said, "The recent upward surprises to activity and inflation suggest the likely need to keep policy at its current level until we have greater confidence that inflation is moving sustainably toward 2% and that the recent data lead me to believe this will take more time than previously thought."

The markets are discounting the chances for a -25 bp rate cut at 10% for the June 11-12 FOMC meeting and 34% for the following meeting on July 30-31.

EUR/USD (^EURUSD) Wednesday fell by -0.09%.  The euro finished slightly lower Wednesday and was pressured by a stronger dollar.  Also, expectations for the ECB to begin cutting interest rates next month are bearish for the euro.  The better-than-expected German industrial production report limited losses in the euro. 

German Mar industrial production fell -0.4% m/m, a smaller decline than expectations of -0.7% m/m.

ECB Governing Council member Wunsch said with "no sign of de-anchoring" of inflation expectations in the Eurozone in the longer term, "the costs of remaining tight for too long seem to outweigh those of a premature loosening."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 94% for its next meeting on June 6.

USD/JPY (^USDJPY) Wednesday rose by +0.61%.  The yen fell moderately Wednesday on carryover pressure from Tuesday when Masato Kanda, Japan’s top currency official, said the government doesn’t need to intervene in the forex market if market movements are orderly, suggesting Japan will tolerate a weaker yen.  Higher T-note yields Wednesday also weighed on the yen.  On the positive side were hawkish comments from BOJ Governor Ueda, who said, "a monetary policy response might be needed" if the yen continues to weaken.

BOJ Governor Ueda said, "Foreign exchange rates make a significant impact on the economy and inflation.  Depending on those moves, a monetary policy response might be needed."  He added that an "abrupt, one-sided weak yen is negative for the economy, and it would be appropriate for the BOJ to raise interest rates at a faster pace if upside price risks grow."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 25% for the June 14 meeting.

June gold (GCM4) Wednesday closed down -1.9 (-0.08%), and July silver (SIN24) closed up +0.057 (+0.21%).  Precious metals prices Wednesday settled mixed.  A stronger dollar on Wednesday weighed on metals prices.  Also, higher global bond yields on Wednesday were bearish for precious metals.  In addition, hawkish central bank comments on Wednesday pressured precious metals prices. BOJ Governor Ueda said it would be appropriate for the BOJ to raise interest rates at a faster pace if upside price risks grow.  Also, Boston Fed President Collins said interest rates will likely need to be held higher for longer to reduce price pressures.

Ongoing Middle East tensions continue to support safe-haven demand for precious metals.  Also, Wednesday’s stock weakness boosted safe-haven demand for precious metals.  Wednesday’s better-than-expected German Mar industrial production report was bullish for industrial metals demand and silver prices. 

• Dollar Rises with Bond Yields
• Dollar Climbs on Hawkish Fed Comments and a Weak Yen
• Dollar Climbs on Hawkish Fed Comments
• Dollar Recovers on Hawkish Fed Comments