The dollar index (DXY00) Friday rose by +0.35% and posted a 2-week high. The dollar climbed Friday on positive carryover from Thursday when President Trump said that the proposed 25% tariffs on Canada and Mexico will go into effect on March 4, and China will likewise be charged an additional 10% tariff on that same date. The dollar raced to its high Friday after a meeting between President Trump and Ukraine President Zelenskiy ended in argument and was canceled as peace talks stalled to end the Ukraine-Russian conflict.
Bearish factors for the dollar were the US Jan personal spending report that unexpectedly declined and the Jan core PCE price index, the Fed’s preferred inflation gauge, that met expectations, dovish factors for Fed policy.
US Jan personal spending unexpectedly fell -0.2% m/m, weaker than expectations of a +0.2% m/m increase and the biggest decline in nearly 4 years. Jan personal income rose +0.9% m/m, stronger than expectations of +0.4% m/m and the biggest increase in a year.
The US Jan core PCE index rose +0.3% m/m and +2.6% y/y, right on expectations, with the +2.6% y/y increase matching the smallest annual pace of increase in nearly 4 years.
The US Feb MNI Chicago PMI rose +6.0 to a 5-month high of 45.5, stronger than expectations of 40.8.
The markets are discounting the chances at 7% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Friday fell by -0.31% and dropped to a 2-week low. The euro gave up an early advance Friday and turned lower after a meeting between President Trump and Ukraine President Zelenskiy ended in an argument and was canceled as peace talks stalled to end the Ukraine-Russian conflict. The euro was also under pressure after ECB Jan inflation expectations declined and German Jan retail sales rose less than expected, dovish factors for ECB policy. In addition, Friday’s decline in the 10-year German bund yield to a 2-week low weakened the euro’s interest rate differentials. The euro Friday recovered its losses and briefly moved higher after German Jan CPI rose more than expected, a hawkish factor for ECB policy.
The ECB Jan 1-year CPI expectations unexpectedly eased to +2.6% versus expectations of no change at +2.8%. The Jan 3-year CPI expectations were unchanged at +2.4%, better than expectations of an increase to +2.5%.
German Jan retail sales rose +0.2% m/m, weaker than expectations of +0.5% m/m.
German Feb CPI (EU harmonized) rose +0.6% m/m and +2.8% y/y, stronger than expectations of +0.5% m/m and +2.7% y/y.
Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) Friday rose by +0.50%. The yen fell to a 1-week low against the dollar Friday on yen-negative Japanese economic news. Feb Tokyo CPI rose less than expected, Jan industrial production declined, and Jan retail sales rose less than expected, all dovish factors for BOJ policy. Limiting the downside in the yen was Friday’s slump in the Nikkei Stock Index to a 5-1/4 month low, which boosted safe-haven demand for the yen. Also, Friday’s decline in T-note yields is supportive of the yen.
Japan Jan industrial production fell -1.1% m/m, right on expectations.
Japan Jan retail sales rose +0.5% m/m, weaker than expectations of +0.6% m/m.
Japan Feb Tokyo CPI rose +2.9% y/y, weaker than expectations of +3.2% y/y. Feb Tokyo CPI ex-fresh food and energy rose +1.9% y/y, weaker than expectations of +2.0% y/y.
April gold (GCJ25) Friday closed down -47.40 (-1.64%), and March silver (SIH25) closed down -0.582 (-1.83%). Precious metals prices Friday added to Thursday’s losses, with gold falling to a 3-week low and silver dropping to a 1-month low. Friday’s rally in the dollar index to a 2-week high is bearish for precious metals. Also, easing inflation expectations in the Eurozone curbed demand for gold as an inflation hedge after the ECB‘s Jan CPI expectations came in weaker than expected.
Precious metals have support from Friday’s as-expected report on US Jan core PCE prices, which bolsters expectations for the Fed to keep cutting interest rates. Also, the safe-haven demand for precious metals increased after President Trump affirmed on Thursday that 25% tariffs on Canada and Mexico would go into effect next week. The fund buying of gold also supports prices as long gold positions in ETFs rose to a 13-3/4 month high Thursday.
