The dollar index (DXY00) today is up by +0.57% and posted a 1-week high. The dollar is climbing today on increased safe-haven demand from President Trump’s threat to impose 25% tariffs on goods from Canada and Mexico on Saturday. The dollar also found support from today’s US economic news, which showed that Dec personal spending rose more than expected. Gains in the dollar accelerated due to hawkish comments from Fed Governor Bowman, who said she wants to see additional progress on inflation before the Fed cuts interest rates further.
US Dec personal spending rose +0.7% m/m, stronger than expectations of +0.5% m/m. Dec personal income rose +0.4% m/m, which is right on expectations.
The US Dec core PCE price index, the Fed’s preferred inflation gauge, rose +0.2% m/m and +2.8% y/y, right on expectations.
The US Q4 employment cost index rose +0.9%, right on expectations.
The US Jan MNI Chicago PMI rose +2.5 to 39.5, weaker than expectations of 40.0.
Fed Governor Bowman said, “I would like to see progress in lowering inflation resume before we make further adjustments to the fed funds target range.”
The markets are discounting the chances at 17% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) today is down by -0.22% at a 1-1/2 week low. Today’s dollar strength is weighing on the euro. Also, signs of weakness in the German economy, the Eurozone’s largest, are undercutting the euro after the German Jan unemployment rate unexpectedly rose to a 4-year high and German Dec retail sales declined. Losses in the euro are limited after the ECB’s Dec 1-year inflation expectations increased to a 5-month high, a hawkish factor for ECB policy.
ECB Dec 1-year inflation expectations increased to a 5-month high of +2.8% from +2.6% in Nov, stronger than expectations of +2.7%. The Dec 3-year inflation expectations were unchanged from Nov at +2.4%, right on expectations.
German Dec retail sales unexpectedly fell -1.6% m/m, weaker than expectations of no change and the biggest decline in 2 years.
The German Jan unemployment rate unexpectedly rose +0.1 to a 4-year high of 6.2%, showing a weaker labor market than expectations of no change at 6.1%.
Swaps are discounting the chances at 21% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) today is up by +0.20%. The yen came under pressure today from comments from BOJ Governor Ueda, who said the BOJ will maintain accommodative monetary policy until underlying inflation gradually rises toward 2%. Higher T-note yields today are also weighing on the yen. Losses in the yen are limited after Japan’s Tokyo Jan CPI rose more than expected at the fastest pace in 1-3/4 years, a hawkish factor for BOJ policy.
The Japan Dec jobless rate unexpectedly fell -0.1 to 2.4%, showing a stronger labor market than expectations of no change at 2.5%.
Japan Dec industrial production rose +0.3% m/m, stronger than expectations of +0.2% m/m.
Japan Dec retail sales fell -0.7% m/m, weaker than expectations of -0.1% m/m.
Japan Tokyo Jan CPI rose +3.4% y/y, stronger than expectations of +3.0% y/y and the largest increase in 1-3/4 years. Tokyo Jan CPI ex-fresh food and energy rose +1.9% y/y, right on expectations.
BOJ Governor Ueda said, “To achieve a gradual pickup in prices accompanied by a solid increase in wages, we need to support economic activity by maintaining accommodative monetary easing so that underlying inflation will gradually rise toward 2%.”
February gold (GCG25) today is up +15.00 (+0.53%), and March silver (SIH25) is up +0.197 (+0.61%). Precious metals today extended this week’s rally, with gold posting a new record nearest-futures high and silver posting a 7-week high. Safe-haven demand is boosting precious metals prices on expectations that President Trump will impose a 25% tariff on imports from Canada and Mexico on Saturday. The increase in tariffs could boost price pressures and increase demand for precious metals as an inflation hedge. Dovish comments today from BOJ Governor Ueda increased demand for precious metals as a store of value when he said the BOJ will maintain accommodative monetary policy until underlying inflation gradually rises toward 2%.
Gains in precious metals today are limited by a stronger dollar. Also, today’s stock rally has reduced safe-haven demand for precious metals. In addition, hawkish comments today from Fed Governor Bowman weighed on precious metals when she said she wants to see additional inflation progress before the Fed further cuts interest rates.
