The dollar was boosted by liquid demand as stocks fell

The Dollar Index (DXY00) is up +0.34% today. Today’s stock decline has increased liquidity demand for the dollar. Also, higher T-note yields today strengthened the dollar interest rate differential. Today’s US economic news was mostly supportive for the dollar as weekly jobless claims rose less than expected and the US trade deficit narrowed more than expected, while US housing unexpectedly rose to an 11-month high.

Initial weekly US jobless claims fell -1,000 to 213,000, showing a stronger labor market than expected for a rise to 215,000.

US housing starts unexpectedly rose +7.2% m/m to an 11-month high of 1.487 million, stronger than expectations for a decline to 1.341 million. John’s construction permits, a proxy for future construction, fell -5.4% m/m to a 5-month low of 1.376 million, weaker than expectations for 1.410 million.

The US January trade deficit narrowed to -$54.5 billion, less than expected -$66.0 billion.

Exchange markets are discounting odds at 0% 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) is down -0.37% against dollar strength today. Also, the euro fell today due to comments from the European Union’s chief economist, Valdes Dombroskis, who said that inflation will exceed 3% this year and GDP in the eurozone could drop to -0.4 points if the war in the Middle East keeps crude oil prices around $100 and gas prices remain stagnant.

Swaps discount a 4% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.

USD/JPY (^USDJPY) is up +0.08% today. The yen fell to an 8-week low against the dollar today as rising oil prices weighed heavily on the Japanese economy. Today’s higher T-note yields are also significant for the yen. Losses in the yen were limited following comments by BOJ Governor Ueda, who said that forex is an important factor influencing prices and affecting inflation more than previously.

Japan’s Q1 BSI major all-industry business conditions index fell to 4.4 from 4.9 in Q4.

Markets are discounting a +3% chance of a BOJ rate hike at the next meeting on March 19.

April COMEX gold (GCJ26) is down -10.1 (-0.20%) today, and May COMEX silver (SIK26) is up +0.960 (+1.12%).

Gold and silver prices are mixed today. Higher international bond yields and a stronger dollar weighed on gold prices today. However, weakness in stocks has prompted safe-haven demand for precious metals. Also, the precious metal has fundamental support for safe havens during the war in Iran. Silver held support today after US housing unexpectedly rose to an 11-month high, a boost to demand for the industrial metal.

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 February 27. Also, long holdings in silver ETFs rose to a 3.5-year high on Dec. 23, although they were off a 3.5-month low hit on Feb. 23.

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