The dollar index (DXY00) today fell by -0.12%. The dollar missed forecasts overnight and fell today as T-note yields fell after the weekly change in ADP activity showed the smallest number of new jobs added in five weeks, a rare occurrence for Fed policy. The dollar’s losses were limited after Feb. pending home sales unexpectedly rose, and as the war with Iran enters its eighteenth day of uncertainty, it is boosting demand for the dollar.
The weekly ADP job change for the four weeks ended February 28 increased by +9,000, the smallest increase in five weeks and a sign of a slowdown in US employer hiring.
US Feb pending home sales unexpectedly rose +1.8% m/m, stronger than expected -0.6% m/m.
The 2-day FOMC meeting begins today, and market expectations are for the Fed to keep the federal funds rate target range unchanged at 3.50%-3.75%. With January’s core PCE price index, the Fed’s preferred inflation gauge, at 3.1%, above the Fed’s 2.0% target, the Fed is expected to signal a longer pause ahead.
Swaps markets are down 1% with a -25 bp rate cut at the Tuesday/Wednesday FOMC meeting.
The dollar continues to be bullish on the poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) today increased by +0.17%. The weakness of the dollar today supports gains in the euro. However, the euro’s gains were limited after today’s economic news showed expectations of Germany’s Mar ZEW survey of economic growth fell more than expected to an 11-month low. Also, today’s +1% increase in crude oil prices is not good for the euro, as higher crude prices are bearish for the Eurozone economy, which relies heavily on energy imports.
German Mar ZEW survey expectations for economic growth fell to -58.8 to an 11-month low of 0.5, weaker than expectations of 39.2.
Swaps reduce the 2% chance of a +25 bp rate hike by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) today fell by -0.06%. The yen is slightly higher today after Japan’s higher education sector index posted its biggest increase in 5.25 years, a factor supporting the yen. Also, low T-notes yields today are bullish for the yen. Gains in the yen were limited by today’s +1% increase in crude oil prices, which is not good for the Japanese economy, which relies on foreign energy imports.
Threats of currency intervention are positive for the yen after Japanese Finance Minister Satsuki Katayama said today that recent currency movements are inconsistent with fundamentals, and officials are fully prepared to respond at any time.
Japan’s Jan tertiary industry index rose +2.5 to 1.7%, a stronger than expected +0.9% and the biggest increase in 5.25 years.
Markets discount the +4% chance of a BOJ rate hike at the next meeting on Thursday.
April COMEX gold (GCJ26) today rose +21.70 (+0.43%), and May COMEX silver (SIK26) rose +0.648 (+0.80%).
Gold and silver prices are moving higher today, amid dollar weakness and lower T-note yields. Also, precious metals continue to see strong safe-haven demand as the war against Iran enters its eighteenth day today, with no end in sight. In addition, uncertainty about US taxes, US political turmoil, large US deficits, and government policy uncertainty are increasing the demand for precious metals as a store of value. Silver’s gains accelerated today after US Feb expected home sales rose unexpectedly, a factor supporting demand for the industrial metal.
The latest precious metals fund liquidation is bearish on prices, as long holdings in gold ETFs fell to a 2-month low on Monday after hitting a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 4-month low on Monday after hitting a 3.5-year high on December 23.
Strong central bank demand for gold is supporting gold prices, following recent news that China’s PBOC’s PBOC reserves increased by +40,000 to 74.19 million troy ounces in January, the fifteenth month in a row that the PBOC has increased its gold reserves.
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
