The dollar index (DXY00) on Friday rose by +0.07% and posted a 1-week high. Strength in T-note yields Friday supported the dollar on Friday’s hawkish US Feb import price index ex-petroleum and Feb manufacturing production reports, causing market participants to slightly dial back expectations for a Fed rate cut within the next few months. Also, the weakness in stocks Friday boosted some liquidity demand for the dollar.
Gains in the dollar were limited after the US Mar Empire manufacturing survey of general business conditions index fell more than expected, and the University of Michigan US Mar consumer sentiment index unexpectedly declined.
The US Feb import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of -0.2% m/m.
The US Mar Empire manufacturing survey of general business conditions index fell -18.5 to -20.9, weaker than expectations of -7.0.
US Feb manufacturing production rose +0.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 10 months.
The University of Michigan US Mar consumer sentiment index unexpectedly fell -0.4 to 76.5, weaker than expectations of an increase to 79.7.
The markets are discounting the chances for a -25 bp rate cut at 1% for next week’s March 19-20 FOMC meeting, 11% for the following meeting on April 30-May 1, and 64% for the meeting after that on June 11-12.
EUR/USD (^EURUSD) on Friday rose by +0.07%. The euro Friday recovered from a 1-week low and moved slightly higher, mainly due to strength in European government bond yields, with the 10-year German bund yield climbing to a 2-week high. The euro Friday initially moved lower on dovish comments from ECB Governing Council member Rehn who said the ECB should be able to begin cutting interest rates this summer.
Eurozone inflation news was mixed. The France Feb CPI (EU harmonized) was revised upward by +0.1 to 3.2% y/y from the previously reported 3.1% y/y. However, the Italy Feb CPI (EU harmonized) was revised downward by -0.1 to 0.8% y/y from the previously reported 0.9% y/y.
ECB Governing Council member Rehn said with Eurozone inflation forecast to be nearing the 2% target level this year and next will allow the ECB "to gradually start taking its foot off the monetary-policy brake when the summer nears."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 8% for its next meeting on April 11 and 85% for the following meeting on June 6.
USD/JPY (^USDJPY) on Friday rose by +0.46%. The yen Friday gave up an early advance and declined to a 1-week low on strength in T-note yields. The yen Friday initially moved higher after a large jump in Japanese union pay increases bolstered the outlook for the BOJ to end its negative interest rate program as soon as next week’s policy meeting.
The Japan Jan tertiary industry index rose +0.3% m/m, stronger than expectations of +0.1% m/m.
The Japanese Trade Union Confederation, the country's largest labor union, secured total pay increases averaging 5.28% in this year's wage talks, the largest increase in more than 30 years.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 56% for next week’s meeting on March 19 and 70% for the following meeting on April 26.
April gold (GCJ4) Friday closed down -6.0 (-0.28%), and May silver (SIK24) closed up +0.321 (+1.28%). Precious metals on Friday settled mixed, with silver climbing to a 3-1/4 month high. Friday’s rally in the dollar index to a 1-week high is negative for metals. Also, higher global bond yields on Friday undercut gold precious metals. In addition, Friday’s stronger-than-expected US economic reports were hawkish for Fed policy and bearish for precious metals. Finally, funds continue to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-year low on Thursday.
Gold has underlying support from market expectations that the Fed and ECB will begin cutting interest rates in June. Silver has carryover support from Friday’s rally in copper prices to an 11-month high and from Friday’s stronger-than-expected US Feb manufacturing production report. Precious metals prices also have underlying support from Middle East geopolitical tensions.
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.
