The dollar index (DXY00) Friday fell by -0.20% and posted a 4-month low. The dollar has fallen every day this week and remains under pressure due to the negative impact of US tariffs on the US economy. Losses in the dollar accelerated Friday on the dovish US Feb payroll report that showed nonfarm payrolls and average hourly earnings rose less than expected, and the unemployment rate unexpectedly moved higher.
However, losses in the dollar Friday were limited due to hawkish Fed comments. Fed Chair Powell said the US economy continues to be in a good place" and the Fed doesn't need to rush to adjust policy and Fed Governor Kugler said it's likely appropriate for the Fed to hold interest rates steady for "some time." Also, Atlanta Fed President Bostic said he favors holding monetary policy steady for the foreseeable future.
US Feb nonfarm payrolls rose +151,000, weaker than expectations of +160,000, and Jan nonfarm payrolls were revised lower to +125,000 from the previously reported +143,000. The Feb unemployment rate unexpectedly rose +0.1 to 4.1%, showing a weaker labor market than expectations of no change at 4.0%.
US Feb average hourly earnings rose to 4.0% y/y from a revised 3.9% y/y in Jan, weaker than expectations of 4.1% y/y.
Fed Chair Powell said, "Despite elevated levels of uncertainty, the US economy continues to be in a good place," and the Fed doesn't need to rush to adjust policy.
Fed Governor Bowman said the neutral rate, the Fed policy level that neither promotes nor restricts economic activity, has likely risen since the Covid-19 pandemic.
Fed Governor Kugler said it's likely appropriate for the Fed to hold interest rates steady for "some time" due to upside risks to inflation and recent increases in inflation expectations.
Atlanta Fed President Bostic said Thursday evening that the direction of the economy is "very much up in the air," and it could be several months before there's clarity on how President Trump's policies and other factors will affect the economy, suggesting he favors holding interest rates steady until at least late spring.
The markets are discounting the chances at 4% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) Friday rose by +0.55% and posted a new 4-month high. Friday's dollar weakness was a positive factor for the euro. Also, the upward revision to Eurozone Q4 GDP is bullish for EUR/USD. The euro added to its gains Friday based on hawkish comments from ECB Governing Council member Muller, who said, "The ECB needs to be increasingly cautious about further interest rate cuts." Friday's weaker-than-expected German Jan factory orders report was a bearish factor for the euro.
Eurozone Q4 GDP was revised upward to +0.2% q/q and +1.2% y/y from the previously reported +0.1% q/q and +0.9% y/y.
German Jan factory orders fell -7.0% m/m, weaker than expectations of -2.5% m/m and the biggest decline in a year.
ECB Governing Council member Muller said, "The ECB needs to be increasingly cautious about further interest rate cuts as several factors, such as tariffs or the impact of defense spending, could accelerate price increases in the near future."
Swaps are discounting the chances at 61% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Friday rose by +0.05%. The yen retreated from a 5-month high against the dollar Friday after a rebound in T-note yields sparked long liquidation in the yen. The yen was also under pressure from a Bloomberg report that said the BOJ favors keeping interest rates steady at this month's policy meeting.
The yen Friday initially moved higher on positive carryover support from Thursday when Japan's largest labor union demanded the biggest wage increase since 1993, which may prompt the BOJ to keep raising interest rates.
Bloomberg reported that BOJ officials are leaning toward keeping interest rates unchanged at the March 18-19 policy meeting as growing uncertainties in the global economy require close attention.
April gold (GCJ25) Friday closed down -12.50 (-0.43%), and May silver (SIK25) closed down -0.529 (-1.59%). Precious metals prices Friday gave up an early advance and settled moderately lower. Hawkish central bank comments undercut precious metals prices on Friday. Fed Chair Powell said the US economy continues to be in a good place" and the Fed doesn't need to rush to adjust policy, and Fed Governor Kugler said it's likely appropriate for the Fed to hold interest rates steady for "some time." Also, Atlanta Fed President Bostic said he favors holding interest rates steady until at least late spring, and ECB Governing Council member Muller said, "The ECB needs to be increasingly cautious about further interest rate cuts." Also, falling inflation expectations are curbing demand for precious metals as an inflation hedge after the US 10-year breakeven inflation rate fell to a 2-1/4 month low Friday. Silver prices are also under pressure because of the concern that US actions to impose tariffs will lead to a global trade war that undercuts economic growth and industrial metals demand.
Precious metals initially moved higher on Friday after the dollar index fell to a 4-month low. Also, the ongoing safe-haven demand for precious metals remained strong after US tariffs went into effect on Tuesday against Canada, China, and Mexico, and Canada and China retaliated with their tariffs on US goods. In addition, fund buying supports gold prices as long gold positions in ETFs rose to a 15-month high Thursday.
