The dollar index (DXY00) today is down -0.59%, adding to Thursday’s decline of -0.58% and posting a new 2-month low. The dollar is being undercut by today’s weak US retail sales report and -6 bp decline in the 10-year T-note yield, which added to Thursday’s decline of -9 bp.
Today’s US Jan retail sales report of -0.9% was weaker than expectations of -0.2%. Excluding autos, Jan retail sales fell by -0.4%, weaker than expectations of +0.3%. Jan “control group” retail sales, which excludes volatile sectors, fell by -0.8%, weaker than expectations of +0.3%. However, the retail sales report was undercut to some extent by the wildfires in California and severe weather in various areas of the country.
In other US economic news, US Jan industrial production rose +0.5% m/m, stronger than expectations of +0.3%. However, Jan manufacturing production fell by -0.1%m/m, weaker than expectations of +0.1% m/m.
US Jan import prices rose by +0.3% m/m and +1.9% y/y, which was close to expectations of +0.4% m/m and +1.9% y/y. Excluding petroleum, US Jan import prices rose by +0.1% m/m, weaker than expectations of +0.2%.
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) today is up +0.32%, adding to Thursday’s +0.79% rally. The euro has been boosted by hopes that talks could lead to a resolution of the Russian-Ukraine war. However, the risks rose in the Russian-Ukraine war after a drone strike overnight damaged the Chernobyl nuclear plant. The euro has also been undercut this week by Thursday’s announcement by the Trump administration of reciprocal tariffs by April 1, which are likely to involve significant tariffs on US imports from Europe that would likely damage the European economy.
The Eurozone Q4 GDP report of +0.1% q/q and +0.9% y/y was close to expectations. Eurozone Q4 employment of +0.1% q/q and +0.6% y/y was slightly weaker than expectations of +0.2% q/q and +1.0% y/y.
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) is down -0.34%, adding to Thursday’s decline of -1.05%. The yen continues to benefit from hawkish comments Thursday from Japanese Prime Minister Ishiba, who said the Japanese economy is on its way to achieving sustainable inflation backed by wage growth.
April gold (GCJ25) is down -29.1 (-0.99%), and March silver (SIH25) is up +0.664 (+2.03%). Precious metals are seeing support from today’s weaker dollar and the continued decline in the 10-year T-note yield. However, gold prices are seeing long liquidation pressure after the sharp rally seen in the past two months. Gold failed to see much support from the overnight drone attack on the Chernobyl nuclear plant in Ukraine.
