The Dollar Index (DXY00) is down -0.13% today. The dollar is under pressure today as stocks rallied on a New York Times report that Iranian activists have offered to negotiate terms to end the war. The dollar rebounded from its worst levels today after the February ADP employment report showed that US employers added more jobs than expected last month, and the February ISM services index unexpectedly expanded by the most in 3.5 years, raising fears for Fed policy.
US February ADP employment change rose +63,000, stronger than expectations of +50,000.
The February US ISM services index unexpectedly rose +2.3 to 56.1, better than expectations for a decline to 53.5 and the strongest pace of expansion in 3.5 years. February’s 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 Hammock said it was important to get inflation back on target and that “Fed policy may be on hold for some time.”
Exchange markets are cutting odds on a -25 bp rate cut at the next policy meeting on March 17-18 at 2%.
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 +0.16% higher today. Today, weakness in the dollar is supporting gains in the euro. Also, today’s Eurozone economic reports, which showed that the Eurozone’s John PPI rose more than expected and John’s unemployment rate unexpectedly fell to a record low, are supportive of ECB policy and the Euro.
Eurozone John 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 unemployment rate fell -0.2 to a record low of 6.1%, showing a stronger labor market than expected at 6.2%.
Swaps discount a 0% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) is down -0.30% today. The yen rose against the dollar today after Japan’s February consumer confidence index rose more than expected to a year high of 6.75. Also, Japanese Finance Minister Satsuki Katayama’s comments today boosted the yen when he said that the Japanese government could prevent more currency movements, including market intervention. In addition, today’s -3% plunge in the Nikkei stock index to a 3.5-week low has created some safe-haven demand for the yen.
Japan’s February consumer confidence index rose +2.1 to a 6.75-year high of 40.0, stronger than expectations of 38.2.
Markets are discounting a +5% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) is up +26.80 (+0.52%) today, and May COMEX silver (SIK26) is up +0.342 (+0.41%).
Gold and silver prices rose today as they fell slightly on Tuesday. Today’s weak dollar is supporting precious metal prices. Also, concerns that Iran’s war could spread across the Middle East are fueling safe-haven demand for gold as Iran has launched drones and missiles against a number of countries in the region, including Qatar, Saudi Arabia, Bahrain 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 bounced back from their best levels today on dovish comments from Cleveland Fed President Beth Hammick, who said: “Fed policy may be on hold for some time.” Also, stronger-than-expected U.S. economic reports on February ADP employment and February ISM services pushed T-Note yields higher and weighted on precious metals.
Precious metals also have safe-haven support amid the ongoing war in Iran and 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
