The dollar index (DXY00) this morning is down by -0.26% and posted a 7-week low. The dollar is under pressure after today’s U.S. Feb unemployment report bolstered expectations for the Fed to begin cutting interest rates by the June FOMC meeting. Today’s fall in the 10-year T-note yield to a 5-week low is also bearish for the dollar. In addition, today’s rally in the S&P 500 to a new record high reduces liquidity demand for the dollar.
U.S. Feb nonfarm payrolls rose +275,000, stronger than expectations of +200,000. However, Jan payrolls were revised downward to +229,000 from the previously reported +353,000. The Feb unemployment rate rose +0.2 to a 2-year high of 3.9%, showing a weaker labor market than expectations of no change at 3.7%.
U.S. Feb average hourly earnings eased to +4.3% y/y from +4.4% y/y in Jan, right on expectations.
The markets are discounting the chances for a -25 bp rate cut at 2% for the March 19-20 FOMC meeting and 29% for the following meeting on April 30-May 1.
EUR/USD (^EURUSD) this morning is up by +0.053% and posted a 7-week high. The euro is climbing today on the dollar's weakness. Also, today’s German industrial production and PPI reports were hawkish for ECB policy and supportive of the euro. Gains in EUR/USD are limited by dovish comments from ECB Governing Council members Nagel and Villeroy de Galhau, who said the ECB could begin cutting interest rates in the spring.
German Jan industrial production rose +1.0% m/m, stronger than expectations of +0.6% m/m and the biggest increase in 11 months.
German Jan PPI of +0.2% m/m and -4.4% y/y was stronger than expectations of +0.1% m/m and -6.6% y/y.
ECB Governing Council member and Bundesbank President Nagel said, "The probability is increasing that we could see an interest rate cut before the summer break."
ECB Governing Council member Villeroy de Galhau said, "It seems very probable that there will be a first rate cut in the spring."
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 18% for its next meeting on April 11 and fully priced in that -25 bp rate cut (105%) for the following meeting on June 6.
USD/JPY (^USDJPY) this morning is down by -0.74%. The yen climbed to a 5-week high against the dollar today on a Reuters report that said BOJ policymakers are leaning toward exiting negative interest rates at this month’s policy meeting. The yen also rose after the 10-year JGB bond yield climbed to a 3-week high today, strengthening the yen’s interest rate differentials. The yen extended its gains after T-note yields retreated.
Reuters reported that an increasing number of BOJ policymakers are leaning toward scrapping the BOJ's negative interest rate at this month's policy meeting, given expectations of larger wage increases this year.
Japan Jan household spending fell -6.3% y/y, weaker than expectations of -4.1% y/y and the biggest decline in nearly three years.
The Japan Jan leading index CI fell -0.6 to 109.9, stronger than expectations of 109.7.
The Japan Feb eco watchers outlook survey unexpectedly rose +0.5 to a 9-month high of 53.0, stronger than expectations of a decline to 52.2.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 67% for its next meeting on March 19 and 79% for the following meeting on April 26.
April gold (GCJ4) this morning is up +11.0 (+0.51%), and May silver (SIK24) is down -0.113 (-0.46%). Precious metals this morning are mixed, with April gold posting a contract high and nearest-futures (H24) gold posting an all-time high. Today’s fall in the dollar index to a 7-week low is bullish for metals. Also, a slump in U.S. and European government bond yields supported precious metals. In addition, speculation that the Fed and ECB will soon pivot to cutting interest rates has sparked the buying of gold as a store of value. Finally, persistent geopolitical risks in the Middle East have underpinned safe-haven demand for precious metals.
On the negative side, today’s rally in the S&P 500 to a record high reduced some safe-haven demand for precious metals. Also, funds continue to liquidate their long gold positions after long gold holdings in ETFs fell to a 4-year low on Thursday. Silver prices are under pressure today after the U.S. Feb unemployment rate unexpectedly rose to a 2-year high, a sign of labor market weakness that is negative for industrial metals demand.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
