The dollar index (DXY00) is down -0.37% today on weak US economic news and ongoing tariff concerns. The dollar is also lower as the 10-year T-note yield fell sharply by -10 bp today, weakening the dollar’s interest rate differentials.
Today’s Feb Conference Board US consumer confidence index fell sharply by -7.0 points to an 8-month low of 98.3, which was much weaker than expectations for a decline to 102.5. The -7.0 point drop was the largest drop in 2-1/2 years and was the third consecutive monthly decline.
The markets remain nervous about the potential negative effect of tariffs on the US economy. President Trump on Monday afternoon, at a joint press conference with French President Macron, said that US tariffs on imports from Mexico and Canada will go ahead “on time, on schedule.” Mr. Trump delayed the tariffs by a month until March 4 due to new border measures implemented by both Canada and Mexico. Mr. Trump on Monday also said he plans to go ahead with the “reciprocal tariffs” that he previously said would be ready by April 1.
US home prices showed solid increases in December. The Dec S&P Corelogic US home price index rose +0.52% m/m and +4.48% y/y, slightly stronger than expectations of +0.40% m/m and +4.41% y/y, and was stronger than Nov’s revised report of +0.44% m/m and +4.35% y/y. Meanwhile, the Dec FHFA US house price index rose +0.4% m/m and +1.4% y/y, which followed Nov’s revised report of +0.4% m/m and +0.9% y/y.
The remainder of this week’s US economic calendar is busy. Thursday’s US Q4 GDP report is expected to show an increase of +2.3% (q/q annualized), with a +4.1% increase in personal consumption. Friday’s Jan PCE price index report, the Fed’s preferred inflation measure, is expected to ease slightly to +2.5% y/y from December’s +2.6%, and the core index is expected to ease to +2.6% y/y from December’s +2.8%.
The markets are discounting the chances at 3% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) is up +0.47%, mainly due to weakness in the dollar. There is also carry-over support for the euro after the German conservative Christian Democrat party, led by Friedrich Merz, won a plurality in Sunday’s German election, beating the far-right Alternative for Germany (AfD) party. However, the centrist parties are expected to have difficulty building a ruling coalition.
The euro found support today from a hawkish comment by ECB Governing Council member and Bundesbank President Joachim Nagel, who said that ECB rates are approaching neutral.
German Q4 GDP was left unrevised at a weak -0.2% q/q and -0.4% y/y.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) is sharply lower by -0.68% and edged to a new 4-1/2 month low, mainly due to overall weakness in the dollar. Also, the yen has underlying support from last Friday’s rise in the 10-year JGB bond yield to a 15-year high of 1.466% although the yield has since fallen back to 1.37%. Japan’s Jan national CPI last Friday rose to a 2-year high of +4.0% y/y, keeping the pressure on the BOJ to lean towards further interest rate hikes.
April gold (GCJ25) is down -45.6 (-1.54%), and March silver (SIH25) is down -0.633 (-1.94%). Precious metals prices are sharply lower due to the risk-off environment and long liquidation pressure. Precious metals are lower despite underlying bullish factors such as today’s lower dollar and the sharp decline in the 10-year T-note yield. Silver prices are sharply lower on concern about industrial metals demand with the potential trade war and weak US consumer confidence.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
