The dollar index (DXY00) Thursday fell to a 2-week low and finished down by -0.60%. Strength in the euro weighed on the dollar after EUR/USD rallied to a 2-week high on hopes that US-Russian talks could lead to the end of the war in Ukraine. Also, lower T-note yields on Thursday weighed on the dollar. Strength in stocks Thursday also reduced liquidity demand for the dollar.
Losses in the dollar were limited after President Trump ordered his administration to consider imposing reciprocal tariffs on numerous trading partners, raising concerns about inflation that could keep the Fed from cutting interest rates. Also, Thursday’s US economic news was hawkish for Fed policy and supportive of the dollar.
US weekly initial unemployment claims fell -7,000 to 213,000, showing a stronger labor market than expectations of 216,000.
US Jan PPI final demand rose +3.5% y/y, stronger than expectations of +3.3% y/y and the largest increase in almost 2 years. Jan PPI ex-food and energy rose +3.6% y/y, stronger than expectations of +3.3% y/y.
President Trump signed a measure on Thursday directing the US Trade Representative and Commerce Secretary to propose new tariffs on a country-by-country basis. Commerce Secretary Lutnick said all studies should be complete by April 1 and that President Trump could act immediately afterward.
The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Thursday climbed to a 2-week high and finished up by +0.63%. The euro rallied Thursday on hopes that US-Russia talks could lead to the end of the Ukraine war. However, the euro fell back from its best levels after Eurozone Dec industrial production fell more than expected and after President Trump announced that reciprocal tariffs are coming.
Eurozone Dec industrial production fell -1.1% m/m, weaker than expectations of -0.6% m/m.
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) Thursday fell by -0.99%. The yen moved higher Thursday on hawkish comments from Japanese Prime Minister Ishiba, who said the Japanese economy is on its way to achieving sustainable inflation. Also, higher Japanese government bond yields strengthened the yen’s interest rate differentials after the 10-year JGB bond yield climbed to a 14-year high Thursday at 1.377%. In addition, Thursday’s report on Japanese producer prices rose more than expected, a hawkish factor for BOJ policy. Finally, Thursday’s decline in T-note yields was supportive of the yen.
Japan’s Jan PPI rose +4.2% y/y, stronger than expectations of +4.0% y/y and the fastest pace of increase in 1-1/2 years.
Japanese Prime Minister Ishiba said the Japanese economy is on its way to achieving sustainable inflation backed by wage growth.
April gold (GCJ25) Thursday closed up +16.70 (+0.57%), and March silver (SIH25) closed down -0.059 (-0.18%). Precious metals Thursday settled mixed. Thursday’s fall in the dollar index to a 2-week low was bullish for metals. Also, Thursday’s decline in T-note yields is supportive of precious metals. In addition, President Trump’s announcement that reciprocal tariffs are coming has raised concerns about inflation and boosted demand for gold as a hedge against inflation.
On the negative side for precious metals was Thursday’s comments from Japanese Prime Minister Ishiba, who said the Japanese economy is on its way to achieving sustainable inflation, which suggests the BOJ will keep raising interest rates. Silver prices came under pressure after President Trump announced reciprocal tariffs, which could lead to a trade war that derails economic growth and demand for industrial metals.
