The dollar index (DXY00) Thursday tumbled to a 2-1/4 month low and finished down by -0.72%. Thursday’s comments from Treasury Secretary Bessent sent T-note yields lower and weighed on the dollar when he said any move by the Treasury to boost the share of longer-term Treasuries in government debt issuance is a “long way off.” The dollar also came under pressure after weekly US unemployment claims rose more than expected and Jan leading indicators fell more than expected, which are dovish factors for Fed policy. In addition, the dollar came under pressure Thursday when the yen rallied to a 2-1/4 month high against the dollar.
The dollar saw support Thursday from US tariff threats and weakness in stocks, which boosted liquidity demand for the dollar. Also, hawkish comments from St. Louis Fed President Musalem supported the dollar when he said Fed policy should remain “modestly restrictive” until inflation is on track to the Fed’s 2% target.
US weekly initial unemployment claims rose +5,000 to 219,000, showing a weaker labor market than expectations of 215,000.
The US Feb Philadelphia Fed business outlook survey fell -26.2 to 18.1, stronger than expectations of 14.3.
US Jan leading indicators fell -0.3% m/m, weaker than expectations of -0.1% m/m.
Treasury Secretary Bessent said any move by the Treasury to boost the share of longer-term Treasuries in government debt issuance is a “long way off” due to current hurdles like elevated inflation and the Fed’s quantitative tightening program.
St. Louis Fed President Musalem said he sees increased risks that inflation progress may stall or even reverse, and that Fed policy should remain “modestly restrictive” until inflation is on track to the Fed’s 2% target.
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) Thursday rose by +0.73%. The dollar’s weakness on Thursday provided moderate support to the euro. Also, higher German bund yields boosted the euro as the 10-year German bund yield rose to a 3-week high Thursday at 2.564%. European bond yields are climbing due to 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. The euro extended its gains Thursday after the Eurozone Feb consumer confidence index rose more than expected to a 4-month high.
Limiting gains in the euro was Thursday’s weaker-than-expected German Jan PPI report, a dovish factor for ECB policy, and dovish comments from ECB Governing Council members Simkus and Stournaras, who expect the ECB to keep cutting interest rates.
The Eurozone Feb consumer confidence index rose +0.6 to a 4-month high of -13.6, stronger than expectations of -14.0.
German Jan PPI fell -0.1% m/m and rose +0.5% y/y, weaker than expectations of +0.6% m/m and +1.2% y/y.
ECB Governing Council member Simkus said, “he agrees with market expectations” for an ECB interest rate cut in March and two more by the end of the year.
ECB Governing Council member Stournaras said the balance of macroeconomic risks in the Eurozone “has shifted from concerns about high inflation to concerns about low growth,” and the ECB’s key interest rate “could fall to around 2% in the course of 2025.”
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) Thursday fell by -1.17%. The yen rallied to a 2-1/2 month high against the dollar Thursday based on hawkish comments from BOJ Board Member Takata, who said it’s important for the BOJ to continue considering gradual rate hikes. Also, higher Japanese government bond yields support the yen after the 10-year JGB bond yield rose to a 15-year high Thursday at 1.448%. In addition, lower T-note yields on Thursday were bullish for the yen.
April gold (GCJ25) Thursday closed up +20.00 (+0.68%), and March silver (SIH25) closed up +0.443 (+1.34%). Precious metals moved higher Thursday, with April gold posting a contract high and nearest-futures (G25) gold posting an all-time high of $2,955.80 an ounce. Precious metals found support Thursday from a weaker dollar and lower T-note yields. Also, geopolitical tensions and concerns over President Trump’s trade and geopolitical agenda are boosting safe-haven demand for precious metals. In addition, dovish comments Thursday from ECB Governing Council members Simkus and Stournaras boosted demand for precious metals as a store of value when they said they expect the ECB to keep cutting interest rates.
Gold prices fell back from their best levels Thursday on comments from Treasury Secretary Bessent, who dampened speculation that the US government might devalue its bullion holdings when he said it’s “not what I had in mind” when discussing plans for a sovereign wealth fund. Also, hawkish comments from St. Louis Fed President Musalem weighed on gold when he said Fed policy should remain “modestly restrictive” until inflation is on track to the Fed’s 2% target.
