The dollar index (DXY00) today is up by +0.03% at a 2-week high. The dollar is climbing today on positive carryover from Thursday when President Trump said that the proposed 25% tariffs on Canada and Mexico will go into effect on March 4, and China will likewise be charged an additional 10% tariff on that same date. The dollar gave up most of its advance after US Jan personal spending unexpectedly declined and the Jan core PCE price index, the Fed’s preferred inflation gauge, met expectations, dovish factors for Fed policy.
US Jan personal spending unexpectedly fell -0.2% m/m, weaker than expectations of a +0.2% m/m increase and the biggest decline in nearly 4 years. Jan personal income rose +0.9% m/m, stronger than expectations of +0.4% m/m and the biggest increase in a year.
The US Jan core PCE index rose +0.3% m/m and +2.6% y/y, right on expectations, with the +2.6% y/y increase matching the smallest annual pace of increase in nearly 4 years.
The US Feb MNI Chicago PMI rose +6.0 to a 5-month high of 45.5, stronger than expectations of 40.8.
The markets are discounting the chances at 5% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
EUR/USD (^EURUSD) today is up by +0.15%. The euro today recovered from a 2-week low and is moving higher after German Jan CPI rose more than expected, a hawkish factor for ECB policy. The euro initially moved lower today after ECB Jan inflation expectations declined and German Jan retail sales rose less than expected, dovish factors for ECB policy. Also, today’s decline in the 10-year German bund yield to a 2-week low weakened the euro’s interest rate differentials. The euro is also pressured by Thursday’s comments from President Trump that proposed tariffs on Canada and Mexico will take effect on March 4.
The ECB Jan 1-year CPI expectations unexpectedly eased to +2.6% versus expectations of no change at +2.8%. The Jan 3-year CPI expectations were unchanged at +2.4%, better than expectations of an increase to +2.5%.
German Jan retail sales rose +0.2% m/m, weaker than expectations of +0.5% m/m.
German Feb CPI (EU harmonized) rose +0.6% m/m and +2.8% y/y, stronger than expectations of +0.5% m/m and +2.7% y/y.
Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
USD/JPY (^USDJPY) today is up by +0.64%. The yen fell to a 1-week low against the dollar today on yen-negative Japanese economic news. Feb Tokyo CPI rose less than expected, Jan industrial production declined, and Jan retail sales rose less than expected, all dovish factors for BOJ policy. Limiting the downside in the yen is today’s slump in the Nikkei Stock Index to a 5-1/4 month low, which boosted safe-haven demand for the yen. Also, today’s decline in T-note yields is supportive of the yen.
Japan Jan industrial production fell -1.1% m/m, right on expectations.
Japan Jan retail sales rose +0.5% m/m, weaker than expectations of +0.6% m/m.
Japan Feb Tokyo CPI rose +2.9% y/y, weaker than expectations of +3.2% y/y. Feb Tokyo CPI ex-fresh food and energy rose +1.9% y/y, weaker than expectations of +2.0% y/y.
April gold (GCJ25) today is down -45.90 (-1.58%), and March silver (SIH25) is down -0.671 (-2.11%). Precious metals prices today added to Thursday’s losses, with gold falling to a 3-week low and silver dropping to a 1-month low. Today’s rally in the dollar index to a 2-week high is bearish for precious metals. Also, an easing of inflation expectations in the Eurozone curbs demand for gold as an inflation hedge after the ECB‘s Jan CPI expectations came in weaker than expected.
Precious metals have support from today’s as-expected report on US Jan core PCE prices, which bolsters expectations for the Fed to keep cutting interest rates. Also, the safe-haven demand for precious metals increased after President Trump affirmed on Thursday that 25% tariffs on Canada and Mexico would go into effect next week. The fund buying of gold also supports prices as long gold positions in ETFs rose to a 13-3/4 month high Thursday.
