The dollar index (DXY00) Monday rose by +0.26%. The dollar posted moderate gains Monday after President Trump revealed plans to impose 25% tariffs on all steel and aluminum imports into the US, raising concern that rising tariffs may boost inflation and limit the Fed's ability to cut interest rates. The dollar also had carryover support from last Friday's US payroll report that showed the Jan unemployment rate fell to an 8-month low and Jan average hourly earnings rose more than expected, hawkish factors for Fed policy. Monday's rally in stocks reduced liquidity demand for the dollar.
The markets are discounting the chances at 8% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Monday fell by -0.20%. The euro fell moderately on Monday after President Trump announced 25% tariffs on all steel and aluminum imports into the US, which could disrupt global trade and weigh on the Eurozone economy. Also, dovish comments Monday from ECB President Lagarde weighed on the euro when she said, "The disinflation process in the Eurozone is well on track." Losses in the euro were limited after the Eurozone Feb Sentix investor confidence index rose more than expected to a 7-month high.
ECB Vice President Guindos warned that implementation of tariffs by the US would create a "supply shock" that "fundamentally" affects world economic expansion.
The Eurozone Feb Sentix investor confidence index rose +5.0 to a 7-month high of -12.7, stronger than expectations of -16.5.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) Monday rose by +0.40%. The yen was under pressure Monday after the Japan Jan eco-watchers outlook survey unexpectedly fell to an 8-month low. Also, President Trump announced 25% tariffs on all steel and aluminum imports into the US, which undercut the yen. Lower T-note yields on Monday limited the downside in the yen. Also, higher Japanese government bond yields strengthened the yen's interest rate differentials and supported the yen after the 10-year JGB bond yield rose to a 13-year high Monday of 1.328%.
The Japan Jan eco-watchers outlook survey unexpectedly fell -0.8 to an 8-month low of 48.0, weaker than expectations of an increase to 49.0.
April gold (GCJ25) Monday closed up +46.80 (+1.62%), and March silver (SIH25) closed up +0.048 (+0.15%). Precious metals on Monday settled moderately higher, with April gold posting a contract high and nearest-futures (G25) gold posting an all-time high of $2,916.10 an ounce. Increased safe-haven demand pushed precious metals prices higher after President Trump announced tariffs on US steel and aluminum imports. A possible increase in gold demand from China is also boosting gold prices after China announced a pilot program to allow insurance companies to invest as much as 1% of their assets in bullion, which could translate into a potential 200 billion yuan ($27.4 billion) of gold buying. Silver prices have carryover support from Monday's rally in copper prices to a 4-month high on concern that copper will be included in potential import tariffs threatened by President Trump.
Monday's stronger dollar was a bearish factor for precious metals prices. Also, Monday's rally in stocks reduced safe-haven demand for precious metals. Silver prices were also weighed down by concern that additional US tariffs would start a trade war derailing the global economy and the demand for industrial metals.
