The dollar index (DXY00) Thursday rose by +0.77% and posted a 1-week high. The dollar rallied Thursday on signs of strength in the US economy after Q4 GDP was left unrevised. Also, 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 Thursday 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. The dollar maintained its gains on hawkish comments from Cleveland Fed President Hammack, who said US interest rates are not “meaningfully restrictive” and should be held steady for some time.
Bearish factors for the dollar Thursday 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.”
Cleveland Fed President Hammack said US interest rates are not “meaningfully restrictive” and should be held steady for some time as officials wait for evidence inflation is returning to the Fed’s 2% target.
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 3% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Thursday fell by -0.77% and posted a 2-week low. Thursday’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. Also, Thursday’s decline in the 10-year German bund yield to a 2-week low weakened the euro’s interest rate differentials. Thursday’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 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) Thursday rose by +0.37%. The yen was under pressure Thursday after the dollar rallied when President Trump affirmed that 25% tariffs on Canada and Mexico would go into effect next week. Also, higher T-note yields Thursday undercut the yen. Losses in the yen were contained ahead of Friday’s Feb Tokyo CPI report and its implications for BOJ policy.
April gold (GCJ25) Thursday closed down -34.70 (-1.18%), and March silver (SIH25) closed down -0.471 (-1.46%). Precious metals prices Thursday retreated, with gold falling to a 2-1/2 week low and silver dropping to a 4-week low. Thursday’s rally in the dollar index to a 1-week high is weighing on precious metals. Also, higher T-note yields Thursday were bearish for precious metals. In addition, hawkish comments from Cleveland Fed President Hammack weighed on precious metals when she said US interest rates are not “meaningfully restrictive” and should be held steady for some time. 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. The fund buying of gold also supports prices as long gold positions in ETFs rose to a 13-3/4 month high Wednesday.
