The dollar index (DXY00) hit a 9.5-month high on Friday and ended +0.65%. The dollar fell on Friday as the war in Iran showed no signs of easing, threatening to push up crude oil prices and prompting the Fed to hold off on cutting interest rates. High oil prices also threaten the economies of Europe and Japan, which rely on energy imports, weakening their currencies against the dollar.
Friday’s US economic news was mixed for the dollar after John’s personal spending, and the University of Michigan’s March US consumer sentiment index was stronger than expected, but Q4 GDP was revised lower, and new orders for John’s capital goods, non-defense old aircraft and parts, were weaker than expected.
US personal spending rose +0.4% m/m, stronger than expectations of +0.3% m/m. January personal income rose +0.4% m/m, weaker than expectations of +0.5% m/m.
The US core PCE price index, the Fed’s best inflation gauge, rose +3.1% y/y, in line with expectations and the highest in 1.75 years.
US January capital goods new orders for non-defense aircraft and parts were unchanged m/m, weaker than expected by +0.5% m/m.
US Q4 GDP was revised down to +0.7% (q/q annualized) from the previously reported +1.4% as Q4 personal consumption fell to +2.0% from the previously reported +2.4%.
The US University of Michigan consumer sentiment index fell -1.1 to 55.5, stronger than expectations of 54.8.
The US University of Michigan’s March 1-year inflation expectations were unchanged from February at 3.4%, weaker than expectations for a rise to 3.7%. March 5-10 year inflation expectations unexpectedly fell to 3.2% from 3.3% in February, weaker than expectations for a rise to 3.4%.
US JOHN JOLTS job openings rose +396,000 to 6.946 million, stronger than expectations of 6.750 million.
Exchange markets are discounting odds at 1% for a -25 bp rate cut at the next FOMC policy meeting on March 17-18.
The dollar continues to decline due to a weak 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) fell to a 7.5-month low on Friday and ended by -0.74%. Dollar strength weighed on the euro on Friday. Also, this week’s 3.75-year high in crude oil prices is a negative for the eurozone economy, which relies on energy imports, weighing on the euro.
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 +0.21% on Friday. The yen fell to a 20-month low against the dollar on Friday after crude oil prices rose more than +3%. The strength of crude oil is destabilizing for the Japanese economy and the yen. Also, high T-note yields were lower for the yen on Friday.
Markets are discounting a +7% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) closed at -64.10 (-1.25%) on Friday, and May COMEX silver (SIK26) closed lower at -3.769 (-4.43%).
Gold and silver prices sold off sharply on Friday, with gold falling to a 1.5-week low. A 9.5-month high in the dollar index on Friday weighed on metals prices. Precious metals were also under pressure as this week’s 3.75-year high in WTI crude oil is expected to add to inflationary pressures and dampen expectations of a Fed rate cut. Silver prices added to their losses on Friday after US Q4 GDP was revised downward, a negative factor for demand for the industrial metal.
Precious metals are still supported by safe-haven demand amid conflict in Iran, which shows no signs of abating. Also, uncertainty about US tariffs, US political turmoil, a large US deficit, and government policy uncertainty are increasing demand for precious metals as a store of value.
Strong central bank demand for gold is also supporting gold 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.
Fund demand for the precious metal remains strong, with long gold holdings in ETFs hitting a 3.5-year high on Feb. 27. Also, long holdings in silver ETFs rose to a 3.5-year high on Dec. 23, while volatility later hit a 4-month low on Thursday.
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
