The dollar index (DXY00) on Monday recovered from early losses and finished up by +0.18%. Short-covering emerged in the dollar Monday after the sharp selloff in stocks sparked liquidity demand for the dollar.
The dollar on Monday initially moved lower on concern about the negative impact of US tariffs on the US economy. Also, comments made Sunday by President Trump weighed on the dollar when he said the US economy faces “a period of transition” from his tariff policies. In addition, the slide in T-note yields on Monday weakened the dollar’s interest rate differentials.
Market attention this week will focus on Wednesday’s Feb US CPI report, which is expected to ease slightly to +2.9% y/y from +3.0% y/y in Jan. The Feb core CPI is expected to ease to +3.2% y/y from +3.3% y/y in Jan. Also, US trade policies will be in focus, with 25% tariffs on US imports of steel and aluminum scheduled to take effect on Wednesday. On Thursday, the Feb final-demand PPI is expected to ease to +3.2% y/y from +3.5% y/y in Jan. On Friday, the University of Michigan’s March consumer sentiment index is expected to fall -1.2 to 63.5. Finally, the markets will also see if Congress can approve a spending bill to avert a government shutdown ahead of a March 15 deadline.
The markets are discounting the chances at 7% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Monday fell by -0.10%. The euro Monday shed early gains and posted modest losses after the dollar rebounded. The euro initially moved higher on Monday’s better-than-expected European confidence and industrial production reports. Also, hawkish comments Monday from ECB Governing Council member Kazimir gave the euro a boost when he said that risks to inflation remain tilted to the upside.
The Eurozone Mar Sentix investor confidence index rose +9.8 to a 9-month high of -2.9, stronger than expectations of -9.3.
German Jan industrial production rose +2.0% m/m, stronger than expectations of +1.5% m/m and the biggest increase in 5 months.
German trade news was mixed as German Jan exports unexpectedly fell -2.5% m/m versus expectations of a +0.5% m/m increase, the largest decline in 8 months. Conversely, Jan imports rose +1.2% m/m, stronger than expectations of +0.5% m/m.
ECB Governing Council member Kazimir warned that the ECB must remain vigilant as “inflation risks remain tilted to the upside.”
Swaps are discounting the chances at 51% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Monday fell by -0.53%. The yen on Monday rallied to a new 5-month high against the dollar. Signs of strong Japanese wage pressures are hawkish for BOJ policy and pushed the 10-year JGB bond yield up to a 16-year high Monday of 1.584%, strengthening the yen’s interest rate differentials. The yen added to its gains Monday as T-note yields declined. There was also safe-haven demand for the yen from Japanese investors due to Monday’s slump in US stocks.
The Japan Jan leading index CI rose +0.1 to 108.0, weaker than expectations of 108.2.
The Japan Feb eco watchers outlook survey fell -1.4 to a 9-month low of 46.6, weaker than expectations of 47.5.
Japan’s full-time base pay in January rose +3.0% y/y, stronger than expectations of +2.9% y/y and the largest advance in 32 years.
April gold (GCJ25) Monday closed down -14.70 (-0.50%), and May silver (SIK25) closed down -0.279 (-0.85%). Precious metals prices settled moderately lower on Monday. Hawkish comments Monday from ECB Governing Council member Kazimir undercut precious metals prices when he said the ECB must remain vigilant as “inflation risks remain tilted to the upside. Easing inflation expectations also curbed demand for gold as an inflation hedge after the US 10-year breakeven inflation rate fell to a 2-1/4 month low Monday of 2.311%.
Silver prices were also under pressure Monday after weaker-than-expected China Feb CPI and PPI reports signaled slack demand in the economy that is bearish for industrial metals demand. Industrial metals prices are also being undercut by economic concerns due to US tariff policies. Metals dropped to their lows on Monday after the dollar recouped early losses and moved higher.
Precious metals had support Monday from the slide in T-note yields. Also, Monday’s selloff in stocks boosted safe-haven demand for precious metals. In addition, precious metals have ongoing safe-haven demand due to US tariffs and retaliation. Finally, fund buying supports gold prices as long gold positions in ETFs rose to a 15-month high last Friday.
Signs of weak demand in China’s economy are weighing on prices and are a negative factor for global growth prospects and industrial metals demand after China Feb CPI fell -0.7% y/y, weaker than expectations of -0.4% y/y and the largest decline in 13 months. Also, Jan PPI fell -2.2% y/y, weaker than expectations of -2.1% y/y.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
