The dollar index (DXY00) today is down by -0.30%. The dollar is under pressure from falling bond yields as the 10-year T-note yield dropped to a 6-week low today, which weakened the dollar’s interest rate differentials. Also, today’s strength in stocks has reduced liquidity demand for the dollar. The dollar also fell on the weaker-than-expected US Q4 GDP and Dec pending home sales reports. Today’s bigger-than-expected decline in US weekly jobless claims is a hawkish factor for Fed policy and supportive of the dollar.
US Q4 GDP rose +2.3% (q/q annualized), weaker than expectations of +2.6%. Q4 personal consumption rose +4.2%, stronger than expectations of +3.2%. The Q4 core PCE deflator rose +2.5%, right on expectations.
US weekly initial unemployment claims unexpectedly fell -16,000 to 207,000, showing a stronger labor market than expectations of an increase to 225,000.
US Dec pending home sales fell -5.5% m/m, weaker than expectations of no change and the biggest decline in 5 months.
The markets are discounting the chances at 17% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) today is up by +0.11%. The euro shook off early losses and moved higher as short covering emerged due to comments from ECB President Lagarde, who said, "The conditions for a recovery in the Eurozone remain in place.” The euro initially moved lower today after the ECB cut interest rates by -25 bp and after Eurozone Q4 GDP rose less than expected.
Eurozone Jan economic confidence rose +1.5 to 95.2, stronger than expectations of 94.1.
Eurozone Q4 GDP was unchanged q/q and rose +0.9% y/y, weaker than expectations of +0.1% q/q and +1.0% y/y.
As expected, the ECB cut the deposit facility rate by -25 bp to 2.75% and said, "The economy is still facing headwinds, but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time."
ECB President Lagarde said, "The conditions for a recovery in the Eurozone remain in place. While the labor market has softened over the recent months, it continues to be robust, with the unemployment rate staying low." She added that ECB policy is still in restrictive territory, and it would be "premature" to discuss when to stop interest rate cuts.
Swaps are discounting the chances at 36% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) today is down by -0.90%. The yen is moving higher today due to hawkish comments from BOJ Deputy Governor Himino, who said the BOJ will keep raising interest rates if its economic outlook is realized. The yen also gained after the BOJ said it is phasing out its fund-provisioning program, which will remove 77 trillion yen ($500 billion) in outstanding loans from its balance sheet by 2028, another step toward normalization of monetary policy.
BOJ Deputy Governor Himino said Japan's real interest rates clearly remain in negative territory even with last week's interest rate hike, and the BOJ will keep raising interest rates if its economic outlook is realized.
February gold (GCG25) today is up +45.10 (+1.63%), and March silver (SIH25) is up +1.197 (+3.81%). Precious metals are sharply higher today, with gold posting a new record nearest-futures high and silver climbing to a 7-week high. Today’s weaker dollar and lower global bond yields are supportive of precious metals. Also, today’s action by the ECB to cut interest rates by -25 bp is bullish for precious metals. In addition, signs of weaker global growth are dovish for central bank policies and will boost demand for precious metals as a store of value after the US Q4 GDP and Eurozone Q4 GDP grew less than expected.
Precious metals prices still have some carryover support from Monday’s comments from President Trump, who said he is considering universal tariffs on everything from steel and copper to semiconductor chips at “much bigger” than 2.5%. The increase in tariffs could boost price pressures and increase demand for precious metals as an inflation hedge.
Today’s stock strength is negative for the safe-haven demand for precious metals. Also, hawkish comments today from BOJ Deputy Governor Himino are bearish for precious metals when he said the BOJ will keep raising interest rates if its economic outlook is realized.
