The Dollar Index (DXY00) is up +0.39% today. The dollar is rising today as rising crude prices boost T-note yields, strengthening the dollar’s interest rate differential. Also, today’s US economic reports, which showed a smaller-than-expected increase in weekly jobless claims and a larger-than-expected increase in Q4 non-farm production, supported the dollar. Gains in the dollar were accelerated today on dovish comments from Richmond Fed President Tom Barkin, who said he expected “several months of high inflation.”
US February Challenger job cuts fell -71.9% y/y to 48,307.
Initial weekly US jobless claims were unchanged at 213,000, showing a stronger labor market than expectations for 215,000.
Q4 nonfarm payrolls rose +2.8%, better than expectations of +1.9%. Q4 unit labor costs rose +2.8%, stronger than expectations of +2.0%.
Hawkish comments today by Richmond Fed President Tom Barkin were supportive of the dollar when he said the latest and expected data reflected “several months of relatively high inflation” that “definitely overturns any conclusion that we’ve been fighting.”
Exchange markets are discounting odds of a -25 bp rate cut at the next policy meeting on March 17-18 at 4%.
The dollar continues to see fundamental weakness as the FOMC is expected to cut interest rates by -37 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to keep rates unchanged in 2026.
EUR/USD (^EURUSD) is down -0.37% today. Dollar strength weighs on the euro today. Also, an unexpected decline in eurozone retail sales is negative for the euro. In addition, crude oil prices hit an 8.5-month high today and crude oil prices hit a 3-year high on Tuesday, weighing on the euro as the eurozone’s dependence on imported energy dampens the region’s growth and purchasing power.
Eurozone Jan retail sales unexpectedly fell -0.1% m/m, weaker than expectations of +0.3% m/m
ECB Vice President Luis de Guindos said a protracted war in the Middle East would risk raising inflation expectations.
ECB Governing Council member and Bundesbank President Joachim Nagel said inflation was a bigger concern than economic growth as the ECB assessed the impact of the war in Iran.
Swaps discount a 2% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) is +0.39% higher. The yen gave up early gains this morning and fell after crude oil prices hit an 8.5-month high, potentially weighing on Japan’s economy, which is heavily dependent on imported energy. Today’s rise in T-note yields is also weakening the yen.
The yen initially rose today after a Bloomberg report said the BOJ is likely to keep interest rates steady at its March meeting but is still on track to raise interest rates, a possibility in April that has not been ruled out, as they continue to monitor the impact of Middle East tensions on Japan’s economy.
Markets are discounting a +2% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) is down by -40.20 (-0.78%) today, and May COMEX silver (SIK26) is down -0.799 (-0.96%).
Gold and silver prices are under pressure today due to the strong dollar. Also, higher global bond yields today are weighing on precious metal prices. In addition, today’s smaller-than-expected increase in US weekly jobless claims is urgent for Fed policy and precious metals. Losses in the precious metal were accelerated today by dovish comments from Richmond Fed President Tom Barkin, who said the Fed was not fighting inflation.
Losses in precious metals were limited today as the conflict in the Middle East entered its sixth day with no sign of a resolution, boosting demand for safe-haven assets. Also, concerns that Iran’s war could spread across the Middle East have prompted calls for safe haven for gold as Iran has launched drones and missiles against a number of countries in the region, including Qatar, Saudi Arabia, Bahrain, Turkey and Oman. In addition, fears that energy costs will boost inflation have spurred purchases of precious metals as an inflation hedge after Iranian drone strikes forced Qatar to close its Ras Laffan plant, the world’s largest natural gas export facility, and the closure of the Strait of Hormuz prompted Iraq and Saudi Arabia to cut OPEC output.
Precious metals also have safe-haven support amid geopolitical risks in Ukraine, the Middle East and Venezuela. In addition, uncertainty over US tariffs, US political turmoil, a large US deficit, and government policy uncertainty are prompting investors to reduce dollar holdings and shift to precious metals.
Strong central bank demand for gold is also supporting prices, following recent news that bullion held in China’s PBOC reserves rose to 74.19 million troy ounces from 40,000 ounces in January, the 15th consecutive month the PBOC has increased 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 monthly injection of liquidity into the US financial system.
Fund demand for the precious metal remains strong, with long-term holdings in gold ETFs hitting a 3.5-year high last Friday. Also, long holdings in silver ETFs hit a 3.5-year high on Dec. 23, although the rally since last Monday pushed them to a 3.5-month low.
As of the date of publication, Amir Espland had no positions (either directly or indirectly) 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
