The dollar index (DXY00) Thursday rose by +0.41% and posted a 1-1/2 week high. The dollar rose Thursday on concerns that US trade policies will keep inflation elevated and dissuade the Fed from lowering interest rates. The dollar added to its gains Thursday on signs of strength in the US economy after weekly jobless claims rose less than expected, the Mar Philadelphia Fed business outlook survey fell less than expected, and Feb existing home sales unexpectedly rose. Thursday’s decline in T-note yields weakened the dollar’s interest rate differentials and limited gains in the dollar.
US weekly initial unemployment claims rose +3,000 to 223,000, showing a slightly stronger labor market than expectations of 224,000.
The US Mar Philadelphia Fed business outlook survey fell -5.6 to 12.5, stronger than expectations of 9.0.
US Feb existing home sales unexpectedly rose +4.2% m/m to 4.26 million, stronger than expectations of 3.95 million.
US Feb leading economic indicators fell -0.3% m/m, weaker than expectations of -0.2% m/m.
The markets are discounting the chances at 18% for a -25 bp rate cut after the May 6-7 FOMC meeting.
EUR/USD (^EURUSD) Thursday fell by -0.47% and posted a 1-1/2 week low. Thursday’s dollar strength weighed on the euro. Also, easing price pressures in the Eurozone may allow the ECB to keep cutting interest rates, a bearish factor for the euro, after the German Feb PPI rose less than expected. Losses in the euro accelerated Thursday based on dovish comments from ECB Governing Council member Villeroy de Galhau, who said the ECB has room to cut interest rates further.
German Feb PPI fell -0.2% m/m and rose +0.7% y/y, weaker than expectations of +0.2% m/m and +1.0% y/y.
ECB President Lagarde said while the process of disinflation remains “well on track,” the ECB is unable to make firm commitments on interest rates due to elevated unpredictability over trade.
ECB Governing Council member Villeroy de Galhau said he’s “not worried about inflation in Europe,” and the ECB has room to cut interest rates further.
Swaps are discounting the chances at 59% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Thursday rose by +0.09%. The yen was under pressure Thursday from a stronger dollar as better-than-expected US economic news supported gains in the dollar. Losses in the yen were limited as short covering emerged in the yen ahead of Friday’s monthly report on Japan’s national CPI. Trading activity was well below average in the yen Thursday, with markets closed in Japan for the Vernal Equinox Day holiday.
April gold (GCJ25) Thursday closed up +2.60 (+0.09%), and May silver (SIK25) closed down -0.214 (-0.63%). Precious metals Thursday settled mixed, with April gold posting a contract high. Precious metals had carryover support from Wednesday when the FOMC kept interest rates unchanged but projected two 25 bp rate cuts by the end of the year. The FOMC also said it would slow the pace of runoff of its balance sheet starting next month, a bullish factor for precious metals. Lower global government bond yields Thursday also supported precious metals prices. Ramped-up geopolitical risks in the Middle East Precious are boosting safe-haven demand for precious metals after Israel this week launched a series of airstrikes across Gaza, ending a two-month ceasefire with Hamas, and after the US launched strikes on Yemen’s Houthi rebels. In addition, the ongoing trade war has boosted the safe-haven demand for precious metals.
Gains in precious metals were limited on Thursday after the dollar index rallied to a 1-1/2 week high. Silver prices were under pressure after the FOMC Wednesday cut its US 2025 GDP forecast, a bearish factor for industrial metals demand. Also, concerns that US trade policies will undercut economic growth that reduces demand for industrial metals are negative for silver prices.
