The dollar index (DXY00) today fell by -0.13%. The dollar is under pressure today as stocks rallied on a New York Times report that Iranian officials have offered to discuss the terms of an end to the war. The dollar returned to its worst level today after the Feb ADP employment report showed that US employers added more jobs than expected last month, and the Feb ISM services index unexpectedly expanded by the most in 3.5 years, hawkish aspects of the Fed’s policy.
US Feb ADP jobs change increased by +63,000, stronger than expected at +50,000.
The US Feb ISM services index unexpectedly rose +2.3 to 56.1, better than expectations for a drop to 53.5 and the strongest pace of expansion in 3.5 years. The Feb ISM services prices index unexpectedly fell -3.6 to an 11-month low of 63.0, weaker than expectations for a rise to 68.3.
Cleveland Fed President Beth Hammack said it is important to return inflation to the target and that “the Fed’s policy may hold for a long time.”
Swaps markets are down 2% with a -25 bp rate cut at the next policy meeting on March 17-18.
The dollar continues to see fundamental weakness as the FOMC is expected to cut interest rates by around -37 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) today increased by +0.16%. The weakness of the dollar today supports gains in the euro. Also, today’s economic reports of the Eurozone, which showed that the Eurozone Jan PPI rose more than expected and the unemployment rate of Jan unexpectedly fell to a low level, is hawkish for the ECB’s policy and supports the euro.
Eurozone Jan PPI rose +0.7% m/m and fell -2.1% y/y, stronger than expectations of +0.2% m/m and -2.6% y/y.
The Eurozone Jan unemployment rate fell -0.2 to a record low of 6.1%, reflecting a stronger than expected labor market of 6.2%.
Swaps cut to 0% chance of a -25 bp cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) today fell by -0.30%. The yen rose against the dollar today after Japan’s consumer confidence index rose more than expected to a five-year high of 6.75. Also, today’s comments from Japanese Finance Minister Satsuki Katayama boosted the yen when he said the Japanese government could take action to end excessive currency movements, including market intervention. In addition, today’s -3% decline in the Nikkei Stock Index to a 3.5-week low caused some safe demand for the yen.
Japan’s Feb consumer confidence index rose +2.1 to a 6.75 year high of 40.0, a stronger than expected 38.2.
Markets are discounting a +5% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) today rose +26.80 (+0.52%), and May COMEX silver (SIK26) rose +0.342 (+0.41%).
Gold and silver prices rose today as they retreated again on Tuesday. Today’s weak dollar supports precious metal prices. Also, concerns that Iran’s war could spread across the Middle East are increasing security demand for gold as Iran has launched drones and missiles against several countries in the region, including Qatar, Saudi Arabia, Bahrain and Oman. In addition, fears that rising energy costs will increase inflation have spurred purchases of precious metals as a hedge against inflation after Iranian drone strikes forced Qatar to shut down its Ras Laffan facility, the world’s largest natural gas exporter, and the closure of the Strait of Hormuz made Iraq and Saudi Arabia, OPEC’s largest oil producers, shut down.
Precious metals have fallen from their best levels today with comments from Cleveland Fed’s Beth Hammack, who said: “Monetary policy may be on hold for a long time.” Also, today’s stronger-than-expected US economic reports on Feb ADP employment and Feb ISM services pushed T-note yields higher and balanced against precious metals.
Precious metals also have safe support amid the ongoing war in Iran and the country’s risks in Ukraine, the Middle East and Venezuela. In addition, uncertainty about US taxes, US political turmoil, a large US deficit, and uncertainty about government policy caused investors to reduce their holdings of dollar assets and switch to precious metals.
The central bank’s strong demand for gold is in line with prices, following recent news that China’s PBOC’s bullion reserves rose by +40,000 to 74.19 million troy ounces in January, marking the fifteenth month in a row that the PBOC has increased its gold reserves.
Finally, increased liquidity in the financial system increases demand for precious metals as a store of value, following the FOMC’s December 10th announcement of a $40 billion monthly cash injection into the US financial system.
Fund demand for precious metals remains strong, with long holdings in gold ETFs hitting a 3.5-year high last Friday. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23, although liquidations have since pushed them to a 3.5-month low last Monday.
As of the date of publication, Rich Asplund did not have (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
