The dollar index (DXY00) today is up by +0.26%. The dollar today is moderately higher on concern that escalation of the trade war will boost inflation and keep Fed policy restrictive after US tariffs on steel and aluminum went into effect and the EU and Canada retaliated by imposing tariffs on some US goods. Gains in the dollar were limited after US Feb CPI rose less than expected, a dovish factor for Fed policy.
US Feb CPI rose +0.2% m/m and +2.8% y/y, weaker than expectations of +0.3% /m and +2.9% y/y. Feb CPI ex-food and energy rose +0.2% m/m and +3.1% y/y, weaker than expectations of +0.3% m/m and +3.2% y/y, with the +3.1% y/y gain the smallest year-on-year increase in 3-3/4 years.
Market attention this week will focus on US trade policies as 25% tariffs on US imports of steel and aluminum took effect today. On Thursday, the Feb final-demand PPI is expected to ease to +3.2% y/y from +3.5% y/y in Jan. 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) today is down by -0.30%. Today’s stronger dollar is weighing on the euro. Also, dovish comments today from ECB Governing Council member Centeno undercut the euro when he said the ECB shouldn’t wait to lower interest rates. Losses in the euro are limited after the 10-year German bund yield jumped to a 16-month high and after the EU retaliated against US tariffs by imposing some tariffs on US goods. Also, ECB President Lagarde warned that the ECB’s job in combating inflation has become harder.
The European Union today imposed tariffs on up to $28.3 billion of US goods, including soybeans, beef and poultry, in retaliation for US tariffs on steel and aluminum imports.
ECB President Lagarde said that abrupt shifts in global trade and higher Eurozone defense spending will make it harder to keep inflation stable.
ECB Governing Council member Centeno said the ECB shouldn’t wait to lower interest rates and, “I would prefer to move sooner rather than later.”
Swaps are discounting the chances at 43% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) today is up by +0.51%. The yen is retreating today after Japanese economic news showed Japan Feb PPI eased and the Q1 BSI large all-industry business conditions fell, dovish factors for BOJ policy. Also, today’s sharp rebound in stocks has curbed safe-haven demand for the yen. Losses in the yen accelerated today as T-note yields rose.
Japan Feb PPI eased to +4.0% y/y from +4.2% y/y in Jan, right on expectations.
Japan Q1 BSI large all-industry business conditions eased to 2.0 from 5.7 in Q4.
April gold (GCJ25) today is up +2.60 (+0.09%), and May silver (SIK25) is up +0.453 (+1.37%). Precious metals prices today are climbing, with silver posting a 2-1/2 week high. The escalation of trade tensions is boosting safe-haven demand for precious metals. US tariffs of 25% went into effect today on imports of steel and aluminum, and the EU and Canada retaliated by imposing their tariffs on some US goods. Also, today’s weaker-than-expected US Feb CPI report is dovish for Fed policy and supports precious metals. Gold also has support on fund buying as long gold positions in ETFs rose to a 15-month high Tuesday. Silver has carryover support today from the rally in copper prices to a 9-1/2 month high.
Today’s rally in the dollar is limiting gains in precious metals. Also, higher global bond yields today are negative for precious metals. In addition, today’s stock rally has reduced safe-haven demand for precious metals.
