The dollar index (DXY00) today fell to a 1-week low and is down by -0.36%. Strength in the euro is weighing on the dollar today as EUR/USD rallied to a 1-week high on optimism that US-Russian talks could lead to the end of the war in Ukraine. Also, lower T-note yields today are weighing on the dollar. Strength in stocks today also reduced liquidity demand for the dollar.
Losses in the dollar are limited after President Trump announced that reciprocal tariffs are coming today, raising concerns about inflation that could keep the Fed from cutting interest rates. Also, today’s US economic news was hawkish for Fed policy and supportive for 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 said in a social media post that he will announce reciprocal tariffs later today on imports from countries that impose higher duties on US goods, although he gave no details on what the tariffs would be or how they would be structured and when they would take effect.
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) climbed to a 1-week high and is up by +0.42%. The euro rallied today on hopes that US-Russia talks could lead to the end of the war in Ukraine. 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 today.
Eurozone Dec industrial production fell -1.1% m/m, weaker than expectations of -0.6% m/m.
Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) today is down by -0.60%. The yen moved higher today 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 today at 1.377%. In addition, today’s Japanese producer prices rose more than expected, a hawkish factor for BOJ policy. Finally, today’s decline in T-note yields was supportive of the yen.
Japan 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) today is up +17.60 (+0.60%), and March silver (SIH25) is down -0.140 (-0.43%). Precious metals today are mixed. Today’s fall in the dollar index to a 1-week low is bullish for metals. Also, today’s decline in T-note yields is supportive of precious metals. In addition, President Trump’s announcement that reciprocal tariffs are coming today have raised concerns about inflation and boosted demand for gold as a hedge against inflation.
On the negative side for precious metals is today’s comments from Japanese Prime Minister Ishiba, who said the Japanese economy is on its way to achieving sustainable inflation, which suggest the BOJ will keep raising interest rates. Silver prices came under pressure after President Trump said he will announce reciprocal tariffs later today, which could lead to a trade war that derails economic growth and demand for industrial metals.
