The dollar index (DXY00) today is up by +0.90% and posted a 3-week high. The dollar jumped today after President Trump imposed 25% tariffs on goods from Canada and Mexico and a 10% tariff on Chinese goods, effective Tuesday. The dollar also found support on today’s plunge in the Canadian dollar to a nearly 22-year low. In addition, today’s slump in stocks has boosted liquidity demand for the dollar. Gains in the dollar accelerated after today’s US ISM manufacturing and construction spending reports were stronger than expected.
The US Jan ISM manufacturing index rose +1.7 to 50.9, stronger than expectations of 50.0 and the highest level in 2-1/3 years.
US Dec construction spending rose +0.5% m/m, stronger than expectations of +0.2% m/m.
The markets are discounting the chances at 17% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) today is down by -1.03% and posted a 2-year low. The euro is sliding today after President Trump threatened to impose tariffs on the Eurozone, which would undercut economic growth and possibly push the Eurozone economy into recession. Also, dovish comments today from ECB Governing Council member Simkus pressured the euro when he said he sees additional ECB interest rate cuts beyond the March policy meeting.
EUR/USD recovered from its worst levels after Eurozone Jan CPI rose more than expected and the Eurozone Jan S&P manufacturing PMI was revised higher, hawkish factors for ECB policy.
Eurozone Jan CPI rose +2.5% y/y, stronger than expectations of +2.4% y/y. Also, Jan core CPI rose +2.7% y/y, stronger than expectations of +2.6% y/y.
The Eurozone Jan S&P manufacturing PMI was revised upward by +0.5 to an 8-month high of 46.6 from the previously reported 46.1.
ECB Governing Council member Simkus said, “Going forward, we can allow ourselves a looser policy,” and the ECB is likely to lower borrowing costs beyond its next meeting in March.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) today is down by -0.73%. The yen is climbing today as the slump in global equity markets has boosted safe-haven demand for the yen. Higher government bond yields have also strengthened the yen’s interest rate differentials as the 10-year JGB bond yield today rose to a 13-year high of 1.264%. In addition, lower T-note yields today are supportive of the yen.
The Japan Jan Jibun Bank manufacturing PMI was revised lower to 48.7 from the previously reported 48.8.
April gold (GCJ25) today is up +29.60 (+1.04%), and March silver (SIH25) is up +0.260 (+0.81%). Precious metals today are moving higher, with April gold posting a contract high and nearest-futures (G25) posting a record high of $2,848.40 an ounce. Safe-haven demand is boosting precious metals prices due to global trade war fears after the US imposed 25% tariffs on imports from Canada and Mexico and a 10% tariff on Chinese goods. Also, today ‘s slide in T-note yields and stock prices are bullish for precious metals. In addition, dovish comments today from ECB Governing Council member Simkus boosted demand for gold as a store of value when he said he sees additional ECB interest rate cuts beyond the March policy meeting. Gains in silver accelerated the US Jan ISM manufacturing index and US Dec construction spending rose more than expected, supportive factors for industrial metals demand.
Limiting gains in precious metals is today’s rally in the dollar index to a 3-week high. Industrial metals prices were also undercut by concern that a global trade war that could derail economic growth and industrial metals demand.
