The dollar index (DXY00) today is up by +0.38% at a 1-week high. The dollar jumped today after US Jan CPI unexpectedly accelerated, dampening expectations for additional Fed rate cuts and signaling the Fed will keep interest rates higher for longer. Also, higher T-note yields today are supporting the dollar. In addition, today’s slump in stocks has boosted liquidity demand for the dollar.
US Jan CPI unexpectedly accelerated to +3.0% y/y from 2.9% y/y in Dec, stronger than expectations of no change at +2.9% y/y and the fastest pace of increase in 7 months. Jan CPI ex-food and energy unexpectedly accelerated to +3.3% y/y from 3.2% y/y in Dec, stronger than expectations of an easing to 3.1% y/y.
The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) today is down by -0.18%. Today’s stronger-than-expected US Jan CPI report has boosted the dollar to the detriment of the euro. Also, the weakness in Italian Dec industrial production is bearish for the euro. Losses in the euro are limited due to hawkish comments from ECB Governing Council member Holzmann, who said inflation in the Eurozone is still a threat.
Italy’s Dec industrial production fell -3.1% m/m, weaker than expectations of -0.2% m/m and the largest decline in nearly 3 years.
ECB Governing Council member Holzmann said the ECB cutting interest rates by 50 bp this year to boost the economy is not a good decision as inflation in the Eurozone is still a threat due to tariffs.
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 up sharply by +1.34%. The yen sank to a 1-week low against the dollar today after the stronger-than-expected US Jan CPI report reduced expectations for easier Fed policy. The surge in T-note yields today is also undercutting the yen. The yen also had some negative carryover from Tuesday when the US imposed 25% tariffs on all steel, aluminum, and finished metal imports into the US.
Japan Jan machine tool orders rose +4.7% y/y, the fourth consecutive monthly increase.
April gold (GCJ25) today is down -18.80 (-0.64%), and March silver (SIH25) is up +0.108 (+0.33%). Precious metals today are mixed. Today’s stronger-than-expected US Jan CPI report curbed expectations for additional Fed interest rate cuts and is bearish for precious metals. Today’s rally in the dollar index to a 1-week high and higher global bond yields are also bearish for precious metals. In addition, precious metals have some negative carryover from Tuesday when Fed Chair Powell signaled the Fed was on hold for the foreseeable future.
Losses in precious metals are limited today due to increased safe-haven demand after stock prices tumbled. Silver is climbing today on carryover support from a rally in copper prices after China tightened requirements for building new copper smelters, which could curb copper supplies.
