The dollar index (DXY00) today is up +0.36%, recovering a bit from last Thursday’s 2-month low. The dollar is seeing support from today’s +3.5 bp rise in the 10-year T-note yield.
The dollar is also seeing support from hawkish Fed comments after Fed Governor Waller on Monday said that the recent economic data supports keeping interest rates on hold until more progress is seen on inflation. However, he said that the CPI may be subject to seasonal adjustment problems and that if inflation behaves as it did in 2024, the Fed can get back to cutting “at some point this year.”
On the Fed front, the markets are awaiting comments by Fed officials Mary Daly and Michael Barr later today and the January 28-29 FOMC meeting minutes will be released on Wednesday.
The NAHB US homebuilder confidence index fell by -5 points to a 5-month low of 42. Negative factors for homebuilders include expectations for higher construction costs due to inflation and tariffs and continued high mortgage rates.
Today’s Feb Empire manufacturing index rose to 5.7 from -12.6 in Jan, substantially stronger than market expectations for a rise to zero.
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) is down -0.42% due mainly to dollar strength. The euro continues to be undercut by US tariff concerns after President Trump last week announced reciprocal tariffs by April 1 and auto tariffs, which could fall heavily on Europe. The euro is seeing support from hopes for an end to the Russian-Ukraine war after top US and Russian officials met in Saudi Arabia.
Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) is up +0.13%, recovering slightly after last week’s sharp decline. The yen saw support last Thursday when Japanese Prime Minister Ishiba said the Japanese economy is on its way to achieving sustainable inflation backed by wage growth, which was hawkish for BOJ policy.
April gold (GCJ25) is up +44.9 (+1.55%), and March silver (SIH25) is up +0.305 (+0.93%). Gold prices are seeing support after Goldman Sachs lifted its year-end gold target to $3100 on central-bank demand and inflows into gold ETFs. Goldman said gold is also seeing support from economic policy uncertainty stemming from investor concern about tariffs. Precious metals prices today are being undercut by the stronger dollar and the +3.5 bp rise in the 10-year T-note yield.
