The dollar index (DXY00) on Friday fell by -0.21%. The dollar moved lower on Friday as a decline in the 10-year T-note yield to a 4-month low has weakened the dollar’s interest rate differentials. Losses in the dollar were limited on Friday due to stronger-than-expected US economic reports on Jan PPI, the Feb MNI Chicago PMI, and Dec construction spending. Also, Friday’s equity market slump boosted liquidity demand for the dollar.
US Jan PPI final demand rose +0.5% m/m and +2.9% y/y, stronger than expectations of +0.3% m/m and +2.6% y/y. Jan PPI ex-food and energy rose +3.6% y/y, stronger than expectations of +3.0% y/y and the largest increase in 10 months.
The US Feb MNI Chicago PMI unexpectedly rose by 3.7 points to 57.7, stronger than expectations of a decline to 52.1 and the fastest pace of expansion in 3.75 years.
US Dec construction spending rose +0.3% m/m, stronger than expectations of +0.2% m/m.
Swaps markets are discounting the odds at 6% 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) on Friday rose by +0.22%. The euro moved higher on Friday amid weakness in the dollar. However, gains in the euro were limited as Friday’s weaker-than-expected German Feb CPI report was dovish for ECB policy and negative for the euro. Friday’s Jan ECB CPI expectations report was mixed for the euro.
Eurozone Jan ECB 1-year CPI expectations fell to 2.6%, weaker than expectations of 2.7%. Jan 2-year CPI expectations were unchanged from Dec at 2.6%, stronger than expectations of 2.5%.
German Feb CPI (EU harmonized) rose +0.4% m/m and +2.0% y/y, weaker than expectations of +0.5% m/m and +2.1% y/y.
Swaps are discounting a 4% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) on Friday fell by -0.06%. The yen rose slightly on Friday due to a weaker dollar. Also, Tokyo consumer prices rose more than expected in Feb, a hawkish factor for BOJ policy. In addition, lower T-note yields on Friday were supportive of the yen. Mixed Japanese economic news limited yen moves after Jan industrial production fell more than expected, while Jan retail sales rose more than expected.
Japan’s Jan industrial production rose +2.2% m/m, weaker than expectations of +5.5% m/m.
Japan Jan retail sales rose +4.1% m/m, stronger than expectations of +1.5% m/m and the largest increase in 5.5 years.
Japan Feb Tokyo CPI rose +1.6% y/y, stronger than expectations of +1.4% y/y. Feb Tokyo CPI ex-fresh food and energy rose +2.5% y/y, stronger than expectations of +2.3% y/y.
The markets are discounting an +8% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) on Friday closed up by +53.70 (+1.03%), and March COMEX silver (SIH26) closed up +5.684 (+6.53%).
Gold and silver prices rallied sharply on Friday and posted 4-week highs. Lower global bond yields on Friday boosted demand for precious metals as a store of value. Also, geopolitical risks are supporting demand for precious metals as a safe haven after President Trump sounded downbeat about diplomatic talks with Iran, saying, “They cannot have nuclear weapons, and we’re not thrilled with the way they’re negotiating.” Axios reported that US negotiators, Kushner and Witkoff, left Geneva disappointed by what they heard from Iranian officials in the US-Iranian nuclear talks. Iran’s state media reported that Iran won’t allow enriched uranium to leave the country. The enrichment of uranium remains a sticking point in the nuclear negotiations, with the US saying Iran would have to send such stocks of uranium to another country or dilute them. President Trump said that he’s giving Iran a March 1-6 deadline for an agreement over the country’s nuclear activities and has threatened military strikes if it fails to comply.
Precious metals also have support amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. 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. 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.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on Thursday. 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 3.25-month low on 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
