The dollar index (DXY00) rallied to a 3.5-week high on Thursday and finished up by +0.19%. Stronger-than-expected US economic news on Thursday boosted the dollar, as weekly jobless claims fell to a 5-week low, and the Feb Philadelphia business outlook survey unexpectedly rose to a 5-month high. The dollar also has some positive carryover from Wednesday, when the hawkish minutes of the Jan 27-28 FOMC meeting stated that “several” officials suggested the Fed may need to raise interest rates if inflation stays above its goal. In addition, hawkish comments from Fed Governor Stephen Miran boosted the dollar when he said he now sees a “less accommodative” interest rate path for the US.
Limiting gains in the dollar on Thursday was the widening of the US Dec trade deficit to a 5-month high and the unexpected decline in Jan pending home sales.
US weekly initial unemployment claims fell -23,000 to a 5-week low of 206,000, showing a stronger labor market than expectations of 225,000.
The US Feb Philadelphia business outlook survey unexpectedly rose +3.7 to a 5-month high of 16.3, stronger than expectations of a decline to 7.5.
The US Dec trade deficit was -$70.3 billion, wider than expectations of -$55.5 billion and the biggest deficit in 5 months.
US Jan pending home sales unexpectedly fell -0.8% m/m, weaker than expectations of a +2.0% m/m increase.
Fed Governor Stephen Miran said he now sees a “less accommodative” interest rate path as US employment has held up better than anticipated and goods inflation has been more stubborn.
Swaps markets are discounting the odds at 6% 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) dropped to a 3.5-week low on Thursday and finished down by -0.16%. The dollar’s strength on Thursday undercut the euro. Also, Thursday’s weaker-than-expected Eurozone Feb consumer confidence was bearish for the euro. The euro also has some negative carryover from Wednesday, when the Financial Times reported that ECB President Christine Lagarde will step down from the central bank before her term expires in October 2027.
The Eurozone Feb consumer confidence index rose +0.2 to -12.2, weaker than expectations of -12.0.
Swaps are discounting a 1% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) on Thursday rose by +0.17%. The yen added to Wednesday’s sharp losses on Thursday, posting a 1-week low against the dollar. Thursday’s dollar strength and higher T-note yields undercut the yen.
Losses in the yen were contained on Thursday after Japan’s Dec core machine orders posted their biggest increase in 29 years. 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.
Japan Dec core machine orders rose +19.1% m/m, stronger than expectations of +5.0% m/m and the largest increase in 29 years.
The markets are discounting a +13% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) on Thursday closed down by -12.10 (-0.24%), and March COMEX silver (SIH26) closed up +0.036 (+0.05%).
Gold and silver prices settled mixed on Thursday. Prices initially moved higher on Thursday as rising geopolitical risks in the Middle East boosted safe-haven demand for precious metals. Concerns about a possible conflict between the US and Iran are mounting after the head of the United Nations nuclear watchdog said the US military buildup in the Middle East means Iran’s window to reach a diplomatic agreement over its nuclear activities is at risk of closing. Precious metals also have support 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.
However, precious metals fell back from their best levels, and gold fell into negative territory after the dollar index rallied to a 3.5-week high. Also, precious metals were weighed down by hawkish comments from Fed Governor Stephen Miran, who said he now sees a “less accommodative” interest rate path for the US. In addition, precious metals have some negative carryover from Wednesday, when the minutes of the Jan 27-28 FOMC meeting stated that “several” policymakers suggested the Fed may need to raise interest rates if inflation stays above its goal.
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.
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.
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