The dollar index (DXY00) today is up by +0.68% at a 1-week high. The dollar is climbing today on signs of strength in the US economy after Q4 GDP was left unrevised, and Jan capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose more than expected. The dollar raced to its high today after President Trump said that the proposed 25% tariffs on Canada and Mexico will go into effect on March 4, and China will likewise be charged an additional 10% tariff on that date. Bearish factors for the dollar included a jump in weekly jobless claims to a 2-1/2 month high and weaker-than-expected Jan pending home sales.
US Q4 GDP was left unrevised at +2.3% (q/q annualized). The Q4 core PCE price index was revised upward to +2.7% from the previously reported +2.5%.
US Jan capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.8% m/m, stronger than expectations of +0.3% m/m.
US weekly initial unemployment claims rose +22,000 to a 2-1/2 month high of 242,000, showing a weaker labor market than expectations of 221,000.
US Jan pending home sales fell -4.6% m/m, weaker than expectations of -0.9% m/m and the biggest decline in 9 months.
Kansas City Fed President Schmid said the Fed may have to balance inflation risks against growth concerns when he said, “While the risks to inflation appear to be to the upside, discussions with contacts in my district, as well as some recent data, suggest that elevated uncertainty might weigh on growth.”
The remainder of this week’s US economic calendar is busy. 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 expected Jan PCE reports of +2.5% nominal and +2.6% core would leave those measures at or above their 3-3/4 year lows posted in 2024 of +2.1% and +2.6%, respectively, and well above the Fed’s +2% inflation target.
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 -0.57% at a 1-week low. Today’s comments by President Trump that proposed tariffs on Canada and Mexico will take effect on March 4 pushed the dollar higher and weighed on the euro. Today’s Eurozone economic news supported the euro after Eurozone Feb economic confidence rose more than expected to a 5-month high, and Eurozone Jan M3 money supply rose less than expected.
Eurozone Feb economic confidence rose +1.0 to a 5-month high of 96.3, stronger than expectations of 95.9.
Eurozone Jan M3 money supply rose +3.6% y/y, weaker than expectations of +3.8% y/y.
Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) today is up by +0.49%. The yen is under pressure today as the dollar rallied when President Trump affirmed that 25% tariffs on Canada and Mexico will go into effect next week. Also, higher T-note yields today are undercutting the yen. Losses in the yen are contained ahead of Friday’s Feb Tokyo CPI report and its implications for BOJ policy.
April gold (GCJ25) today is down -46.50 (-1.59%), and March silver (SIH25) is down -0.497 (-1.54%). Precious metals prices today are moderately lower, with gold falling to a 2-1/2 week low and silver dropping to a 4-week low. Today’s rally in the dollar index to a 1-week high is weighing on precious metals. Also, higher T-note yields today are bearish for precious metals. Silver prices retreated after US Jan pending home sales fell by the most in 9 months, a bearish factor for industrial metals demand.
Precious metals have support on safe-haven demand after President Trump today affirmed that 25% tariffs on Canada and Mexico will go into effect next week. Fund buying of gold also supports prices as long gold positions in ETFs rose to a 13-3/4 month high Wednesday.
