The dollar index (DXY00) Thursday rose by +0.19%. The dollar rose Thursday on a possible trade war escalation that would boost inflation and keep the Fed's policy restrictive. President Trump threatened to enact a 200% tariff on European wine, champagne, and other alcoholic beverages late Thursday if the EU doesn't repeal a tax on US whiskey. The weakness in stocks Thursday also boosted some liquidity demand for the dollar. Thursday's US economic news was mixed for the dollar as weekly jobless claims unexpectedly fell and Feb produce prices rose less than expected.
US weekly initial unemployment claims unexpectedly fell -2,000 to 220,000, showing a stronger labor market than expectations of an increase to 225,000.
US Feb PPI final demand was unchanged m/m and rose +3.2% y/y, weaker than expectations of +0.3% m/m and +3.3% y/y. Also, Feb PPI ex-food and energy fell -0.1% m/m and rose +3.4% y/y, weaker than expectations of +0.3% m/m and +3.5% y/y.
Market attention for the rest of this week will focus on US trade policies. On Friday, the University of Michigan's March consumer sentiment index is expected to fall -1.2 to 63.5. Finally, the markets will also see if Congress can approve a spending bill to avert a government shutdown ahead of a March 15 deadline.
The markets are discounting the chances at 1% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Thursday fell by -0.31%. The euro slid Thursday on a possible escalation of tariffs on the EU after President Trump threatened to enact a 200% tariff on European wine, champagne, and other alcoholic beverages if the EU doesn't repeal a tax on US whiskey. The euro was also under pressure due to dovish comments from ECB Governing Council member and Bundesbank President Nagel, who said inflation will be back to the ECB's 2% target at the end of the year. On the positive side for the euro, Eurozone Jan industrial production posted its largest increase in 5 months.
Eurozone Jan industrial production rose +0.8% m/m, stronger than expectations of +0.6% m/m and the largest increase in 5 months.
ECB Governing Council member and Bundesbank President Nagel said, "We will achieve price stability this year," and Eurozone inflation will return to the ECB's 2% target by the end of 2025.
Swaps are discounting the chances at 47% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Thursday fell by -0.36%. The yen rallied moderately Thursday on hawkish comments from BOJ Governor Ueda, who said he expects wages and consumer spending in Japan to improve. Gains in the yen accelerated Thursday after T-note yields gave up an early advance and moved lower. On the negative side was the possible escalation of trade tensions after President Trump commented on Japan's 204% tariffs on US rice.
BOJ Governor Ueda said he expects real wages and consumer spending to improve in Japan as import inflation subsides while robust wage gains continue.
April gold (GCJ25) Thursday closed up +44.50 (+1.51%), and May silver (SIK25) closed up +0.563 (+1.67%). Precious metals rallied Thursday, with Apr gold posting a contract high and nearest-futures gold (H25) posting a record high of $2,988.00 an ounce. Silver also rose to a 4-1/2 month high. The escalation of trade tensions is boosting safe-haven demand for precious metals after President Trump threatened to enact a 200% tariff on European wine, champagne, and other alcoholic beverages if the EU doesn't repeal a tax on US whiskey. Also, Thursday's weaker-than-expected US Feb PPI report is dovish for Fed policy and supports precious metals. In addition, lower global bond yields on Thursday supported precious metals. Fund buying also supports gold as long gold positions in ETFs rose to a 15-month high Wednesday.
Thursday's dollar strength was bearish for metals. Silver prices are also under pressure because of concerns that the escalation of tariffs will start a trade war that will derail economic growth and demand for industrial metals.
