The dollar index (DXY00) this morning is down by -0.25% and posted a 1-month low. The dollar extended Wednesday’s losses on today’s Fed-friendly productivity and trade deficit reports. Also, strength in the yen weighed on the dollar as the yen today climbed to a 1-month high against the dollar. Strength in stocks today has also reduced liquidity demand for the dollar.
U.S. weekly initial unemployment claims were unchanged at 217,000, close to expectations of 216,000.
The U.S. Jan trade deficit increased to -$67.4 billion, wider than expectations of -$63.3 billion and the largest deficit in 9 months, a negative factor for Q1 GDP.
U.S. Q4 nonfarm productivity was unrevised at 3.2%, which was better than expectations for a downward revision to 3.1%. Q4 unit labor costs were unexpectedly revised lower to 0.4% from the previously reported 0.5%, weaker than expectations of an increase to 0.7%.
Comments today from Fed Governor Bowman were slightly hawkish and supportive of the dollar when she said monetary policy appears "appropriately calibrated" to lower inflation and that it is too soon to begin cutting interest rates.
The markets are discounting the chances for a -25 bp rate cut at 2% for the March 19-20 FOMC meeting and 21% for the following meeting on April 30-May 1.
EUR/USD (^EURUSD) this morning is up by +0.15%. The euro today recovered from early losses and climbed to a 6-week high after comments from ECB President Lagarde dampened speculation of imminent ECB rate cuts when she said she and her colleagues aren't "sufficiently confident" at present to commence monetary easing. The euro today initially moved lower after German Jan factory orders posted their biggest decline in 3-3/4 years and then extended losses after the ECB cut its 2024 Eurozone GDP and inflation forecasts.
German Jan factory orders fell -11.3% m/m, weaker than expectations of -6.0% m/m and the biggest decline in 3-3/4 years.
The ECB, as expected, kept the deposit facility rate unchanged at 4.00% and said that maintaining this level of borrowing costs for "sufficiently long" will make a "substantial contribution" to returning consumer price growth to its 2% goal.
The ECB cut its Eurozone 2024 GDP forecast to 0.6% from a December forecast of 0.8% and cut its Eurozone 2024 inflation forecast to 2.3% from a December forecast of 2.7%.
ECB President Lagarde said the Eurozone economy remains weak and that wage growth is starting to moderate. She added that there's a definite slowdown in consumer prices but that she and her colleagues aren't "sufficiently confident" at present to commence monetary easing.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 14% for its next meeting on April 11 and 88% for the following meeting on June 6.
USD/JPY (^USDJPY) this morning is down by -0.74%. The yen rallied to a 1-month high against the dollar today after strong Japanese wage news and hawkish BOJ comments bolstered speculation the BOJ may exit its negative interest rate policy as soon as this month. A decline in T-note yields today is also giving the yen a boost.
Japan Jan labor cash earnings rose +2.0% y/y, stronger than expectations of +1.2% y/y and the biggest increase in 7 months.
Hawkish comments from BOJ Board member Nakagawa boosted the yen when he said, "There are signs of a clear shift in businesses' behavior for setting wages, and Japan's economy and inflation are steadily making progress toward meeting the stable 2% inflation target."
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 78% for its next meeting on March 19 and 86% for the following meeting on April 26.
April gold (GCJ4) this morning is up +5.4 (+0.25%), and May silver (SIK24) is up +0.132 (+0.56%). Precious metals this morning are moderately higher, with April gold posting a contract high and nearest-futures (H24) gold posting an all-time high. Also, silver rose to a 2-1/4 month high. Today’s fall in the dollar index to a 1-month low is bullish for metals. Also, a slump in global bond yields today supports 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, heightened geopolitical risks in the Middle East have underpinned safe-haven demand for precious metals.
On the negative side, today’s stock rally has 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 Tuesday. Gains in silver are limited after German Jan factory orders posted their steepest decline in 3-3/4 years, a negative factor 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.
