The dollar index (DXY00) on Thursday rose by +0.16%. On Thursday, the dollar recovered from early losses and moved higher as hawkish comments from San Francisco Fed President Daly and Atlanta Fed President Bostic pushed back the chances of Fed rate cuts until later this year. The dollar initially moved lower Thursday after the Jan core PCE deflator rose at the slowest pace in 2-3/4 years, a dovish factor for Fed policy. Other U.S. economic reports Thursday were bearish for the dollar after the Jan MNI Chicago PMI unexpectedly contracted by the most in seven months, and after Jan pending home sales unexpectedly fell by the most in five months.
U.S. weekly initial unemployment claims rose +13,000 to 215,000, showing a weaker labor market than expectations of 210,000.
U.S. Jan personal spending rose +0.2% m/m, right on expectations. Jan personal income rose +1.0% m/m, stronger than expectations of +0.4% m/m and the biggest increase in a year.
The U.S. Jan PCE core deflator eased to 2.8% y/y from 2.9% y/y in Dec, right on expectations and the slowest pace of increase in 2-3/4 years.
The U.S. Feb MNI Chicago PMI unexpectedly fell -2.0 to 44.0, weaker than expectations of an increase to 48.0 and the steepest pace of contraction in 7 months.
U.S. Jan pending home sales unexpectedly fell -4.9% m/m, weaker than expectations of an increase of 1.5% m/m and the biggest decline in 5 months.
San Francisco Fed President Daly said the Fed is "ready" to cut interest rates when "data demands us to do," but "there is no imminent risk to the economy faltering."
Atlanta Fed President Bostic said that if inflation continues to fall as he expects, it will probably be appropriate for the Fed to start easing this summer.
The markets are discounting the chances for a -25 bp rate cut at 3% for the March 19-20 FOMC meeting and 21% for the following meeting on April 30-May 1.
EUR/USD (^EURUSD) on Thursday fell by -0.29%. On Thursday, the euro erased early gains and turned lower as the dollar recovered from early losses and moved higher. The euro was also under pressure after German Jan retail sales unexpectedly declined and German Feb CPI eased, dovish factors for ECB policy. EUR/USD on Thursday initially moved higher on hawkish comments from ECB Governing Council member Holzmann, who said he favors waiting until June for the ECB to begin cutting interest rates.
German Jan retail sales unexpectedly fell -0.4% m/m, weaker than expectations of +0.5% m/m.
German Feb unemployment change rose +11,000, showing a weaker labor market than expectations of +5,000. The Feb unemployment rate was unchanged at a 2-1/2 year high of 5.9%, weaker than expectations of 5.8%.
German Feb CPI (EU harmonized) eased to 2.7% y/y from 3.1% y/y in Jan, right on expectations.
ECB Governing Council member Holzmann said he doesn't see any significant talks on lowering borrowing costs before the ECB's policy meeting in June.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 5% for its next meeting on March 7 and 22% for the following meeting on April 113
USD/JPY (^USDJPY) on Thursday fell by -0.49%. The yen on Thursday rallied to a 2-week high against the dollar on hawkish comments from BOJ board member Takata, who said the BOJ's 2% price target is "finally coming into sight," bolstering expectations for the BOJ to end its negative interest rate campaign by as soon as next month. The yen also found support Thursday on a decline in T-note yields. Japanese economic news Thursday was mixed for the yen as Jan retail sales rose more than expected, but Jan industrial production fell more than expected.
Japan Jan retail sales rose +0.8% m/m, stronger than expectations of +0.5% m/m.
Japan Jan industrial production fell -7.5% m/m, weaker than expectations of -6.8% m/m and the biggest decline in 3-1/2 years.
Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 26% for its next meeting on March 19 and 82% for the following meeting on April 26.
April gold (GCJ4) on Thursday closed up +12.0 (+0.59%), and Mar silver (SIH24) closed up +0.256 (+1.14%). Precious metals Thursday posted moderate gains, with gold climbing to a 3-week high. Lower global bond yields Thursday were bullish for precious metals. Also, Thursday’s Fed-friendly economic news on Jan core PCE deflator, weekly jobless claims, Jan MNI Chicago PMI, and Jan pending homes sales may push the Fed to cut interest rates and is bullish for precious metals.
On the bearish side for metals Thursday was a stronger dollar. Also, the Jan MNI Chicago PMI unexpectedly contracted by the most in seven months, and Jan pending home sales unexpectedly fell by the most in five months, which are negative factors for industrial metals demand and silver prices. In addition, gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Wednesday.
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.
