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The dollar index (DXY00) today is up by +0.55% at a 1-week high. Today’s slide in stocks has boosted some liquidity demand for the dollar. Also, weakness in the euro and the British pound is bullish for the dollar after the currencies fell to 1-week lows. Today’s US economic news was mixed for the dollar, and the decline in T-note yields is negative for the dollar.
The US Feb Empire manufacturing general business conditions survey fell -0.6 to 7.1, a smaller decline than expectations of 6.2.
The US Feb NAHB housing market index unexpectedly fell by -1 to a 5-month low of 36, weaker than expectations of an increase to 38.
Chicago Fed President Austan Goolsbee warned that services inflation remains elevated, but there is potential for more interest rate cuts this year if inflation continues to return to the Fed’s 2% target.
Swaps markets are discounting the odds at 9% for a -25 bp rate cut at the next policy meeting on March 17-18.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
EUR/USD (^EURUSD) fell to a 1-week low today and is down by -0.34%. The euro is under pressure today from the unexpected decline in the German Feb ZEW expectations of economic growth survey. Also, dollar strength today is weighing on the euro.
The German Feb ZEW expectations of economic growth survey unexpectedly fell -1.3 to 58.3, weaker than expectations of an increase to 65.2.
Swaps are discounting a 4% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) today is up by +0.14%. The yen is under pressure from lower Japanese government bond yields after the 10-year JGB bond yield fell to a 5-week low today, weakening the yen’s interest rate differentials. Also, the decline in the Dec tertiary industry index by the most in 9 months is bearish for the yen.
Hawkish comments today from BOJ Board member Seiji Adachi are supportive of the yen when he said he favored a BOJ interest rate increase in April. Divergent central bank policies are also supportive of the yen, with the BOJ seen raising interest rates in the near term, while the Fed and ECB keep their rates steady or cut them. Lower T-note yields today are also bullish for the yen.
The Japan Dec tertiary industry index fell -0.5% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 9 months.
BOJ Board member Seiji Adachi said, “A BOJ rate hike in March would entail risk, as it would be based on expectations, not confirmation,” and the BOJ would likely raise interest rates in April when new economic data becomes available.
The markets are discounting a +14% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) today is down -153.7 (-3.05%), and March COMEX silver (SIH26) is down -4.974 (-6.38%).
Gold and silver prices are sharply lower today and dropped to 1-week lows. Today’s rally in the dollar index to a 1-week high is weighing on metals prices. Also, optimism that a nuclear deal between the US and Iran can be reached has reduced safe-haven demand and sparked a long liquidation in precious metals after Iran said it reached a “general agreement” with the US on a nuclear deal.
Precious metals are supported today by lower global bond yields. Also, safe-haven demand for precious metals is supporting prices amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. In addition, US political uncertainty, large US deficits, and uncertainty regarding government policies are prompting investors to cut holdings of dollar assets and shift into precious metals.
Strong central bank demand for gold is also supportive of prices, following the recent news that bullion held in China’s PBOC reserves rose by +40,000 ounces to 74.19 million troy ounces in January, the fifteenth consecutive month the PBOC has boosted its gold reserves.
Finally, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC’s December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.
Gold and silver plunged from record highs on January 30 when President Trump announced he had nominated Keven Warsh as the new Fed Chair, which fueled massive liquidation of long positions in precious metals. Mr. Warsh is one of the more hawkish candidates for Fed Chair and is seen as less supportive of deep interest rate cuts. Also, recent volatility in precious metals prices has prompted trading exchanges worldwide to raise margin requirements for gold and silver, leading to the liquidation of long positions.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on January 28. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23, though liquidation has since knocked them down to a 2.5-month low on February 2.
