The dollar index (DXY00) Wednesday rose by +0.10%. The dollar posted moderate gains Wednesday after the Fed kept interest rates unchanged and removed the reference in the post-FOMC meeting statement to inflation making progress, suggesting the Fed may remain on pause for longer. The dollar also found support in comments from Fed Chair Powell, who said economic activity has continued to expand at a solid pace and that the Fed does not need to be in a hurry to cut interest rates.
The dollar fell back from its best levels Wednesday afternoon as tariff concerns eased when US Commerce Secretary nominee Lutnick said Canada and Mexico could avoid new tariffs this weekend if they clamp down on border security.
As expected, the FOMC voted unanimously to keep the fed funds target range unchanged at 4.25%-4.50% and, said inflation remains "somewhat elevated" and removed a reference to inflation having made progress toward their 2% goal. The post-FOMC statement also removed language noting that labor market conditions have generally eased, saying instead that "the unemployment rate has stabilized at a low level" and "labor market conditions remain solid."
Fed Chair Powell said economic activity has continued to expand at a solid pace, and "with our policy stance significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance."
The markets are discounting the chances at 20% for a -25 bp rate cut at the March 18-19 FOMC meeting.
EUR/USD (^EURUSD) Wednesday fell by -0.09%. The euro was under pressure Wednesday from Eurozone economic news that showed Eurozone money supply rose less than expected, and German Jan GfK consumer confidence declined. The euro is also weighed down by expectations that the ECB will cut interest rates by -25 bp at Thursday’s policy meeting.
Eurozone Dec M3 money supply rose +3.5% y/y, weaker than expectations of 3.9% y/y.
The German Feb GfK consumer confidence index fell -1.0 to -22.4.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) Wednesday fell by -0.22%. The yen moved moderately higher against the dollar Wednesday on the hawkish minutes of the December BOJ meeting when policymakers agreed to raise the policy interest rate if the economic outlook is realized. Gains in the yen were limited after the Japan Jan consumer confidence index unexpectedly fell to a 1-3/4 year low, and the 10-year JGB 10-year bond yield fell to a 1-week low of 1.184%, weakening the yen’s interest rate differentials.
The Japan Jan consumer confidence index unexpectedly fell -1.0 to a 1-3/4 year low of 35.2, weaker than expectations of an increase to 36.5.
February gold (GCG25) Wednesday closed up +2.30 (+0.08%), and March silver (SIH25) closed up +0.511 (+1.65%). Precious metals Wednesday posted moderate gains, with silver climbing to a 1-1/2 week high. Precious metals also have some carryover support from Monday night’s comments from President Trump, who said he is considering universal tariffs on everything from steel and copper to semiconductor chips at “much bigger” than 2.5%. The increase in tariffs could boost price pressures and increase demand for precious metals as an inflation hedge. Also, Wednesday’s slide in stocks boosted safe-haven demand for precious metals.
Wednesday’s stronger dollar limited gains in precious metals. Also, the December BOJ meeting minutes were hawkish and weighed on precious metals after BOJ policymakers agreed to raise interest rates if the economic outlook is realized. The Fed’s hawkish pause in interest rate cuts Wednesday was bearish for precious metals as the post-FOMC meeting statement said inflation remains “somewhat elevated,” signaling the Fed has no plans to cut interest rates in the near term.
