The dollar index (DXY00) slid to a 1-week low today and is down -0.05%. The dollar is under pressure today after T-note yields fell on the weaker-than-expected US economic reports on the Q4 employment cost index and Dec retail sales. The weaker reports bolstered expectations that the Fed will resume easing monetary policy this year, a bearish factor for the dollar. Strength in the Chinese yuan also undercut the dollar after the yuan rose to a 2.5-year high against the dollar today.
The US Q4 employment cost index rose +0.7% q/q, weaker than expectations of +0.8% q/q and the smallest increase in 4.5 years.
US Dec retail sales were unchanged m/m, weaker than expectations of +0.4% m/m. Dec retail sales ex-autos were also unchanged m/m, weaker than expectations of +0.4% m/m.
The dollar sank to a 4-year low late last month when President Trump said he’s comfortable with the recent weakness in the dollar. Also, the dollar remains under pressure as foreign investors pull capital from the US amid a growing budget deficit, fiscal profligacy, and widening political polarization.
Swaps markets are discounting the odds at 22% for a -25 bp rate cut at the next policy meeting on March 17-18.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.
EUR/USD (^EURUSD) today is down by -0.09%. The euro is slightly lower today after a dovish ECB blog post said that lower interest rates can reduce the drag on inflation and economic growth caused by higher US tariffs. Losses in the euro are contained after ECB Vice President Luis de Guindos said that current interest rates in the Eurozone are appropriate.
ECB Vice President Luis de Guindos said, “We believe that risks are balanced and the current level of interest rates is appropriate in the Eurozone.”
Swaps are discounting a 2% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) today is down by -0.97%. The yen rallied to a 1-week high against the dollar today on signs of strength in the Japanese economy after Jan machine tool orders rose by the most in 3.75 years. Gains in the yen accelerated today after comments from Japanese Prime Minister Takaichi eased fiscal concerns when she said any tax cut on food sales will not require an increase in debt issuance.
Japan Jan machine tool orders rose +25.3% y/y, the biggest increase in 3.75 years.
Japanese Prime Minister Takaichi said that a proposed sales tax cut for food will end after 2 years, will not rely on debt issuance, and will apply only to food and beverages.
The markets are discounting a +28% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) today is down -16.20 (-0.32%), and March COMEX silver (SIH26) is down -0.509 (-0.62%).
Gold and silver prices are lower today. Strength in global equity markets today has reduced safe-haven demand for precious metals, weighing on gold and silver prices. Also, recent volatility in precious metals prices has prompted trading exchanges worldwide to raise margin requirements for gold and silver, leading to the liquidation of long positions.
Precious metals found support from today’s weaker dollar as the dollar index dropped to a 1-week low. Also, today’s weaker-than-expected US economic news on Dec retail sales and the Q4 employment cost index bolster the case for easier Fed policy and are bullish for precious metals. In addition, precious metals have carryover support from Monday when Bloomberg reported that Chinese regulators told financial institutions to scale back their holdings of US debt, reviving worries that foreign investors may be diverting their dollar assets into precious metals.
Precious metals are supported by safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, precious metals are surging as the dollar debasement trade gathers steam. Late last month, President Trump said that he’s comfortable with the recent weakness in the dollar, which sparked demand for metals as a store of value. In addition, US political uncertainty, large US deficits, and uncertainty regarding government policies are prompting investors to cut holdings of dollar assets and shift into precious metals.
Strong central bank demand for gold is also supportive of prices, following the recent news that bullion held in China’s PBOC reserves rose by +40,000 ounces to 74.19 million troy ounces in January, the fifteenth consecutive month the PBOC has boosted its 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-per-month liquidity injection into the US financial system.
Gold and silver plunged from record highs on January 30 when President Trump announced he had nominated Keven Warsh as the new Fed Chair, which fueled massive liquidation of long positions in precious metals. Mr. Warsh is one of the more hawkish candidates for Fed Chair and is seen as less supportive of deep interest rate cuts.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on January 28. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23, though liquidation has since knocked them down to a 2.5-month low last Monday.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
