The dollar index (DXY00) today is down by -1.13% and tumbled to a 3-3/4 month low. Concern about the negative impact of US tariffs on the US economy is undercutting the dollar. Also, strength in the euro weighed on the dollar after EUR/USD today jumped to a 3-3/4 month high. The dollar added to its losses today after the US Feb ADP employment change posted its smallest increase in 7 months, a dovish factor for Fed policy. The dollar recovered from its worst level after the US Feb ISM services index expanded more than expected.
The US Feb ADP employment change rose +77,000, well below expectations of +140,000 and the smallest increase in 7 months.
US Jan factory orders rose +1.7% m/m, right on expectations and the largest increase in 6 months.
The US Feb ISM services index unexpectedly rose +0.7 to 53.5, stronger than expectations of a decline to 52.5. The Feb ISM services prices paid sub-index rose +2.2 to 62.6, stronger than expectations of no change at 60.4.
Market attention the rest of this week will focus on Friday's Feb nonfarm payroll report (expected to rise by +160,000), and the Feb unemployment rate (expected to remain unchanged at 4.0%). Also, Feb average hourly earnings are expected to be unchanged from Jan at +4.1% y/y. In addition, Fed Chair Powell on Friday gives the keynote speech on the economic outlook at Chicago Booth's 2025 US Monetary Policy Forum.
The markets are discounting the chances at 11% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) today is up by +1.19% at a 3-3/4 month high. The euro jumped today after the 10-year German bund yield spiked to a 15-month high when German chancellor-in-waiting Merz said Germany would amend its constitution to exempt defense and security outlays from limits on fiscal spending. The euro also garnered support after the Eurozone Jan PPI rose more than expected, a hawkish factor for ECB policy.
Eurozone Jan PPI rose +0.8% m/m and +1.8% y/y, stronger than expectations of +0.3% m/m and +1.3% y/y.
German Chancellor-in-waiting Merz said Germany would amend its constitution to exempt defense and security outlays from limits on fiscal spending and do "whatever it takes" to defend the country.
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 down by -0.77%. The yen is climbing today after the Japan Jibun Bank services PMI was revised upward to a 6-month high. Also, comments from BOJ Deputy Governor Uchida boosted the yen when he said Japan's benchmark interest rate remains on a gradual upward path. Higher Japanese government bond yields also supported the yen after the 10-year JGB bond yield rose to a 1-1/2 week high today of 1.452%. The yen added to its gains today after T-note yields fell when the US ADP Feb employment change rose less than expected and signaled weakness in the US labor market.
The Japan Jibun Bank services PMI was revised upward by +0.6 to 53.7 from the previously reported 53.1, the strongest pace of expansion in 6 months.
BOJ Deputy Governor Uchida said, "The BOJ will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation" if the economic outlook is realized.
April gold (GCJ25) today is up +6.40 (+0.22%), and May silver (SIK25) is up +0.604 (+1.87%). Precious metals prices today are moving higher, with silver climbing to a 1-week high. Today's fall in the dollar index to a 3-3/4 month low is bullish for precious metals. Precious metals still have strong safe-haven demand after US tariffs went into effect Tuesday against Canada, China, and Mexico, and Canada and China retaliated with their tariffs on US goods. Also, gold has support as a store of value after German chancellor-in-waiting Merz said Germany would amend its constitution to exempt defense and security outlays from limits on fiscal spending. Silver prices also rose on positive carryover from a rally in copper today to a 2-1/2 week high after President Trump suggested that US imports of copper could also be subject to a 25% tariff.
Gains in precious metals are limited as a stock recovery today from the Monday-Tuesday selloff has curbed some safe-haven demand for precious metals. Also, comments from US Commerce Secretary Lutnick undercut safe-haven demand for precious metals when he said there could be a compromise on US tariffs on Canadian and Mexican goods.
