The dollar index (DXY00) on Tuesday fell by -0.02%. The dollar on Tuesday gave up an early advance and fell to a 1-1/2 week low on weaker-than-expected economic news on Jan factory orders and Feb ISM services. Also, lower bond yields Tuesday weighed on the dollar, as the 10-year T-note yield fell to a 3-week low. The dollar recovered most of its losses after a stock slide spurred some liquidity demand for the dollar.
U.S. Jan factory orders fell -3.6% m/m, weaker than expectations of -2.9% m/m and the biggest decline in 3-3/4 years.
The U.S. Feb ISM services index fell -0.8 to 52.6, weaker than expectations of 53.0.
The markets are discounting the chances for a -25 bp rate cut at 2% for the March 19-20 FOMC meeting and 23% for the following meeting on April 30-May 1.
EUR/USD (^EURUSD) on Tuesday fell by -0.06%. The euro on Tuesday fell back from a 1-week high and posted modest losses. A decline in European government bond yields Tuesday weighed on the euro after the 10-year German bund yield fell to a 2-1/2 week low. The euro on Tuesday initially moved higher on dollar weakness, and after the Eurozone Feb S&P composite PMI was revised higher.
The Eurozone Feb S&P composite PMI was revised upward by +0.3 to an 8-month high of 49.2 from the previously reported 48.9.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 4% for its next meeting on March 7 and 20% for the following meeting on April 113
USD/JPY (^USDJPY) on Tuesday fell by -0.40%. The yen on Tuesday moved higher after economic news showed that Japan’s Tokyo Feb CPI rose more than expected, boosting expectations for the BOJ to end negative interest rates. Also, an upward revision to the Japan Feb Jibun Bank services PMI supports the yen. Tuesday’s decline in T-note yields also supported the yen.
The Japan Feb Jibun Bank services PMI was revised upward by +0.4 to 52.9 from the previously reported 52.5.
Japan's Feb Tokyo CPI rose +2.6% y/y, stronger than expectations of +2.5% y/y. However, the Feb Tokyo CPI ex-fresh food and energy eased to +3.1% y/y from +3.3% y/y in Jan, right on expectations and the slowest pace of increase in a year.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 43% for its next meeting on March 19 and 73% for the following meeting on April 26.
April gold (GCJ4) on Tuesday closed up +15.6 (+0.73%), and May silver (SIK24) closed down -0.007 (-0.03%). Precious metals on Tuesday settled mixed, with gold posting a 3-month high. Tuesday’s slump in the dollar to a 1-1/2 week low was bullish for metals. Also, weakness in stocks on Tuesday has boosted some safe-haven buying of precious metals. In addition, lower global bond yields on Tuesday are bullish for precious metals. Finally, heightened geopolitical risks in the Middle East have underpinned safe-haven demand for precious metals.
On the negative side for precious metals, funds continue to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-year low on Monday. Also, silver prices fell back from a 2-month high and closed slightly lower after weaker-than-expected U.S. economic reports on Jan factory orders and Jan ISM services were bearish for industrial metals demand.
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.
