The dollar index (DXY00) today is slightly higher, adding to Tuesday’s gain of +0.45%. The dollar is seeing support from a fresh US tariff threat and increased liquidity demand with today’s sell-off in stocks. In a bearish factor for the dollar, the 10-year T-note yield is currently trading slightly lower by -0.4 bp.
The dollar is seeing support from President Trump’s announcement of a new set of tariffs, which could be inflationary and hawkish for Fed policy. President Trump said last night that he will likely impose tariffs of around 25% on US auto, semiconductor, and pharmaceutical imports by April 2. Mr. Trump said the tariffs would be delayed until April 2 to give companies time to move production into the US so they would not be affected by the new import tariffs. These new tariffs would add to the previously announced 25% tariffs on steel and aluminum that take effect in March, and “reciprocal tariffs” on a country-by-country basis that will be calculated and take effect by April 1. Mr. Trump has also announced a 10% import tariff on US imports from China, and 25% tariffs on Canada and Mexico although those have been deferred until at least March 4.
US Jan housing starts fell -9.8% to 1.366 million, weaker than expectations for a decline to 1.390 million. That followed a revised +16.1 surge in December to 1.515 million units. Meanwhile, Jan building permits rose +0.1% to 1.483 million, stronger than expectations of a decline to 1.460 million.
On the Fed front, the markets are waiting for this afternoon’s 2PM ET release of the January 28-29 FOMC meeting minutes. The FOMC at that meeting left its federal funds target range unchanged at 4.25-4.50%, standing pat after cutting the funds rate by a total of 100 bp in second half of 2024.
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 by -0.12%. The euro continues to be undercut by US tariff concerns after President Trump announced sector tariffs on autos, chips, and pharmaceuticals that could further weaken the Eurozone economy.
The euro has underlying support from hawkish comments released today by ECB Executive Board Member Isabel Schnabel, who suggested the ECB is nearing the point of pausing or halting its rate cuts. She said ECB officials at their next meeting, where the ECB is expected to cut rates by another -25 bp, should debate whether to drop the language from their post-meeting statement that implies leaning towards another rate cut.
The euro also has support from higher European bond yields seen this week, driven by ideas that European defense spending will need to rise sharply as Europe is increasingly forced to defend itself against Russian aggression as US-Russian relations thaw.
Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) is down -0.49%. The yen is seeing underlying support from recent hawkish comments from top Japanese officials. Japanese Prime Minister Ishiba said last Thursday the Japanese economy is on its way to achieving sustainable inflation backed by wage growth, which increased the odds for rate hikes. The markets are currently discounting an overall +40 bp rise in the BOJ’s benchmark rate by year-end.
April gold (GCJ25) today is up +4.2 (+0.14%), and March silver (SIH25) is down -0.233 (-0.70%). Gold prices today are seeing carry-over support from Tuesday when 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 slightly higher dollar index. Today’s weaker-than-expected US housing starts report was negative for silver and industrial metals prices.
