The dollar index (DXY00) today is little changed. The dollar is being undercut by today’s -4 bp decline in the 10-year T-note yield. Also, the euro is seeing support from Sunday’s German election results.
The forex markets are looking ahead to a busy US economic schedule this week. Tuesday’s Feb Conference Board US consumer confidence index is expected to show a -1.4 point decline to 102.7. Thursday’s US Q4 GDP report is expected to show an increase of +2.3% (q/q annualized), with a +4.1% increase in personal consumption. Friday’s Jan PCE price index report, the Fed’s preferred inflation measure, is expected to ease slightly to +2.5% y/y from December’s +2.6%, and the core index is expected to ease to +2.6% y/y from December’s +2.8%.
The Trump administration has launched fresh measures against China. The administration proposed fees on the use of commercial ships made in China, which caused Chinese shipping stocks to fall on Monday. President Trump also issued a memorandum to the US Committee on Foreign Investment in the US instructing the Committee to limit China’s ability to invest in key US sectors such as technology, food, farmland, minerals, natural resources, ports, and shipping terminals.
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) is slightly higher by +0.06%. The euro is seeing support after the conservative Christian Democrat party, led by Friedrich Merz, won a plurality in Sunday’s German election, beating the far-right Alternative for Germany (AfD) party. However, the centrist parties are expected to have difficulty building a ruling coalition.
The euro was undercut after the Feb German IFO Business Climate index was unchanged at 85.2, weaker than expectations for an increase to 85.8.
The final-Jan Eurozone CPI was left unrevised at -0.3% m/m and +2.5% y/y, and the core CPI was left unrevised at +2.7% y/y, in line with market expectations.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) is up +0.03%. The yen is seeing support as the 10-year JGB yield is unchanged today, while the US 10-year T-note yield fell -4 bp. The 10-year JGB bond yield last Friday rose to a 15-year high of 1.466%, supporting the yen’s interest rate differentials. However, BOJ Governor Ueda warned last Friday that the BOJ would boost its purchases of government bonds if long-term bond yields rose too quickly. Japan’s Jan national CPI last Friday rose to a 2-year high of +4.0% y/y.
April gold (GCJ25) is up +2.0 (+0.07%), and March silver (SIH25) is down -0.527 (-1.60%). Gold prices are seeing support from lower US T-note yields. Gold is also seeing geopolitical support as the Trump administration launched new trade and investment measures against China, and as European politics shift. Silver prices are being undercut by concern about the US economy after last Friday’s weak economic reports, when consumer sentiment fell to a 15-month low and Jan existing home sales fell -4.9%.
