The dollar index (DXY00) Friday rose by +1.06%. The dollar on Friday recovered from early losses and rallied moderately, rebounding from Thursday’s 6-month low. Short covering emerged in the dollar Friday after US March payrolls rose more than expected, a hawkish factor for Fed policy. The dollar added to its gains Friday due to hawkish comments from Fed Chair Powell, who said the Fed was in no hurry to adjust its monetary policy by cutting interest rates.
The dollar on Friday initially moved lower after China announced 34% retaliatory tariffs on US imports, bolstering concerns that a trade war would derail the economy and force the Fed to cut interest rates. Also, Friday’s fall in the 10-year T-note yield to a 6-month low of 3.856% weakened the dollar’s interest rate differentials. In addition, the dollar may face a confidence crisis if President Trump’s tariffs prompt foreign investors to dump US assets.
US March nonfarm payrolls rose +228,000, stronger than expectations of +140,000. However, the March unemployment rate unexpectedly rose +0.1 to 4.2%, showing a weaker labor market than expectations of no change at 4.1%.
US March average hourly earnings rose +3.8% y/y, weaker than expectations of +4.0% y/y and the slowest pace of increase in 8 months.
Fed Chair Powell said the economic impact of new tariffs is likely to be significantly larger than expected and may lead to slower growth and higher inflation. He added that the Fed is well-positioned to wait to consider adjustments to monetary policy.
The markets are discounting the chances at 34% for a -25 bp rate cut after the May 6-7 FOMC meeting.
EUR/USD (^EURUSD) Friday fell by -1.00%. The euro retreated on Friday as it fell back from Thursday’s 6-month high. The euro came under pressure Friday after German Feb factory orders rose less than expected, a dovish factor for ECB policy. Losses in the euro accelerated Friday after the dollar strengthened on the hawkish payroll report and Powell comments. The euro was also undercut by concern that US trade policies could spark a recession in the Eurozone.
German Feb factory orders were unchanged m/m, weaker than expectations of +3.4% m/m.
Swaps are discounting the chances at 86% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Friday rose by +0.66%. The yen fell from a 6-month high against the dollar Friday and posted moderate losses. Long liquidation emerged in the yen Friday to knock prices lower after the dollar rallied on hawkish payroll report and Powell comments. Also, comments from BOJ Governor Ueda were bearish for the yen when he suggested the BOJ may keep monetary policy steady in the near term and not raise interest rates due to US tariffs.
The yen Friday initially moved higher as concern about a global trade war hammered equity markets worldwide and sparked safe-haven yen buying after China announced 34% retaliatory tariffs against US imports. The yen also garnered support after Friday’s economic news that Japanese household spending fell less than expected. In addition, lower T-note yields were bullish for the yen after the 10-year T-note yield dropped to a 6-month low Friday.
Japan Feb household spending fell -0.5% y/y, stronger than expectations of -0.8% y/y.
BOJ Governor Ueda said US tariffs have added uncertainty to the economic outlook and will weigh on growth, suggesting the BOJ will keep monetary policy steady in the near term.
June gold (GCM25) Friday closed down -86.30 (-2.76%), and May silver (SIK25) closed down -2.740 (-8.57%). Precious metals on Friday plummeted for the second day, with gold falling to a 2-week low and silver dropping to a 3-month low. Precious metals plunged Friday after China imposed 34% tariffs on US goods, which deepened stock losses worldwide and prompted investors to liquidate their profitable long gold and silver positions to raise cash to offset losses in other markets. Also, falling inflation expectations are bearish for gold as they curb demand for gold as an inflation hedge after the US 10-year breakeven inflation rate fell to a 6-month low Friday. Silver prices also sank as China’s retaliatory tariffs on US goods threatened to start a trade war that derails the global economy and demand for industrial metals. Losses in precious metals accelerated Friday when Fed Chair Powell said monetary policy was on hold, dampening speculation the Fed would look to cut interest rates
Friday’s plunge in global government bond yields was bullish for precious metals. Also, trade war concerns continue to fuel safe-haven demand for precious metals after China retaliated against US tariffs with tariffs on US goods. In addition, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals as Israel continues airstrikes across Gaza, ending a two-month ceasefire with Hamas, and as the US continues to launch strikes on Yemen’s Houthi rebels. Finally, this week’s selloff in global equity markets boosted some safe-haven demand for precious metals.
