The dollar index (DXY00) today is up by +0.39%. The dollar is climbing today as soaring crude prices are boosting T-note yields, strengthening the dollar's interest rate differentials. Also, today's US economic reports, which showed a smaller-than-expected increase in weekly jobless claims and a larger-than-expected increase in Q4 nonfarm productivity, are supportive of the dollar. Gains in the dollar accelerated today on hawkish comments from Richmond Fed President Tom Barkin, who said he expects "a couple of months of high inflation."
US Feb Challenger job cuts fell -71.9% y/y to 48,307.
US weekly initial unemployment claims were unchanged at 213,000, showing a stronger labor market than expectations of 215,000.
Q4 nonfarm productivity rose +2.8%, better than expectations of +1.9%. Q4 unit labor costs rose by +2.8%, stronger than expectations of +2.0%.
Hawkish comments today from Richmond Fed President Tom Barkin were supportive of the dollar when he said recent and expected data reflect "a couple months of relatively high inflation," which "certainly puts pause to any conclusion that we're done fighting this."
Swaps markets are discounting the odds at 4% 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 -37 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 -0.37%. Strength in the dollar today is weighing on the euro. Also, an unexpected decline in Eurozone Jan retail sales is negative for the euro. In addition, today's jump in crude oil prices to an 8.5-month high and Tuesday's surge in nat-gas prices to a 3-year high are bearish for the euro as the Eurozone's dependence on imported energy undercuts the region's growth and purchasing power.
Eurozone Jan retail sales unexpectedly fell -0.1% m/m, weaker than expectations of +0.3% m/m
ECB Vice President Luis de Guindos said a prolonged conflict in the Middle East would risk pushing inflation expectations higher.
ECB Governing Council member and Bundesbank President Joachim Nagel said inflation is a bigger concern than economic growth as the ECB assesses the implications of the war in Iran.
Swaps are discounting a 2% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) is up by +0.39%. The yen gave up an early advance today and turned lower after crude oil prices jumped to an 8.5-month high, potentially weighing on Japan's economy, which depends heavily on imported energy. Today's increase in T-note yields is also undercutting the yen.
The yen initially moved higher today after a report from Bloomberg said the BOJ is likely to hold interest rates steady at its March meeting but is still on track to raise interest rates, with the possibility of April not ruled out, as they continue to monitor the implications of Middle East tensions for Japan's economy.
The markets are discounting a +2% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) today is down by -40.20 (-0.78%), and May COMEX silver (SIK26) is down -0.799 (-0.96%).
Gold and silver prices are under pressure today from a stronger dollar. Also, higher global bond yields today are weighing on precious metals prices. In addition, today's smaller-than-expected increase in US weekly jobless claims is hawkish for Fed policy and bearish for precious metals. Losses in precious metals accelerated today on hawkish comments from Richmond Fed President Tom Barkin, who said the Fed is not done fighting inflation.
Losses in precious metals are limited today as the war in the Middle East entered its sixth day with no sign of resolution, spurring demand for safer assets. Also, concerns that the Iran war could spread throughout the Middle East are boosting safe-haven demand for gold as Iran has launched drones and missiles against several countries in the region, including Qatar, Saudi Arabia, Bahrain, Turkey, and Oman. In addition, fears that soaring energy costs will boost inflation has spurred buying of precious metals as an inflation hedge after Iranian drone strikes forced Qatar to shut its Ras Laffan plant, the world's largest natural gas export facility, and the closure of the Strait of Hormuz has prompted Iraq and Saudi Arabia, OPEC's largest producers, to curb crude production as their storage facilities fill up.
Precious metals also have safe-haven support amid the geopolitical risks in Ukraine, the Middle East, and Venezuela. In addition, uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty 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.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high last Friday. 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 3.5-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. For more information please view the Barchart Disclosure Policy here.
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