The Dollar Index (DXY00) fell -0.35% on Friday. The dollar was under pressure on Friday due to the US February payrolls report. Also, a decline in US John retail sales fueled negative sentiment against the dollar.
Losses in the dollar were limited on Friday as lower equity markets boosted liquidity demand for the dollar. The Fed’s comments on Friday were also supportive of the dollar. Fed Governor Christopher Waller said the Iran war was unlikely to lead to sustained inflation, and Cleveland Fed President Beth Hammock and Boston Fed President Susan Collins expressed support for keeping interest rates at their current soft cap levels “for some time.”
February US non-farm payrolls unexpectedly fell to -92,000, weaker than expectations for a +55,000 increase and the biggest drop in four months. February’s unemployment rate unexpectedly rose +0.1 to 4.4%, showing a weaker labor market than expectations for no change at 4.3%.
US February average hourly earnings rose +0.4% m/m and +3.8% y/y, stronger than expectations of +0.3% m/m and +3.7% y/y.
US John retail sales fell -0.2% m/m, a smaller drop than expectations of -0.3% m/m. John’s Retail’s previous car sales were unchanged m/m, in line with expectations.
US John Consumer Credit rose +$8.05 billion, weaker than expectations of +$12.65 billion.
Fed Governor Christopher Waller said, “Thinking about monetary policy, the Iran war does not lead to persistent inflation. That’s one reason the Fed doesn’t look at energy prices but at core prices excluding energy, because the core is the best predictor of future inflation.”
Cleveland Fed President Beth Hammock said, “Under my base case, I think policy should be on hold for a while as we see evidence that inflation is coming down and the labor market is stabilizing further.”
Boston Fed President Susan Collins said, “My baseline paints an uncertain picture of inflation, with persistent risks. This, combined with recent evidence suggesting a relatively stable labor market, argues, in my view, for keeping policy rates at their current, loosely constrained levels for some time.”
Exchange markets are discounting odds for a -25 bp rate cut at the next policy meeting on March 17-18 at 5%.
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) fell -0.07% on Friday. The euro fell slightly on Friday after Eurozone Q4 GDP was down. Also, a 2.5-year high in crude oil prices on Friday, along with a 3-year high in European natural gas prices on Tuesday, is weighing on the euro as the eurozone’s dependence on imported energy dampens the region’s growth and purchasing power. A weak dollar on Friday limited losses in the euro.
Eurozone Q4 GDP slipped to +0.2% q/q and +1.2% y/y from the previously reported +0.3% q/q and +1.3% y/y.
Swaps discount a 5% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) rose +0.20% on Friday. The yen fell to a 6-week low against the dollar on Friday after crude oil prices hit a 2.5-year high, potentially weighing on Japan’s economy, which depends on imported energy.
Losses in the yen were capped on Friday by dovish comments from BOJ Vice Governor Ryuzo Himino, who said Japan’s economy was in a deflationary mode and a weaker yen was a factor pushing up consumer prices through higher import costs and movements in corporate transfer prices.
Markets are discounting a +6% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) closed on Friday by +80.00 (+1.58%), and May COMEX silver (SIK26) closed at +2.130 (+2.59%).
Gold and silver prices fell sharply on Friday as the conflict in the Middle East entered a seventh day with no sign of a resolution, boosting demand for safe-haven assets. Also, concerns that Iran’s war could spread throughout the Middle East are fueling calls for safe havens for gold as Iran has launched drones and missiles against several countries in the region, including Qatar, Saudi Arabia, Bahrain, Turkey and Oman. In addition, fears that higher energy costs will fuel inflation spurred purchases of precious metals as an inflation hedge after crude prices rose to a 2.5-year high on Friday. In addition, Friday’s weaker-than-expected US February payrolls report is expected to support Fed policy and precious metals.
Gains in the precious metal accelerated on Friday after President Trump said the United States does not want an end to the war with Iran and that “there will be no deal with Iran without unconditional surrender,” fueling concerns that the United States could be belting out a protracted war.
On the bearish side for the precious metal on Friday were tough comments from Cleveland Fed President Beth Hammock and Boston Fed President Susan Collins, who expressed support for keeping interest rates at their current soft-capped levels “for some time.” Silver prices were also negatively impacted after Eurozone Q4 GDP was revised downward, a bearish factor for industrial metal demand.
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 assets and shift them 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
