The dollar index (DXY00) on Friday fell by -0.35%. The dollar was under pressure on Friday from a weaker-than-expected US Feb payroll report. Also, a decline in US Jan retail sales added to negative sentiment toward the dollar.
Losses in the dollar were limited on Friday as a slump in equity markets boosted some liquidity demand for the dollar. Fed comments on Friday were also supportive of the dollar. Fed Governor Christopher Waller said the Iran war is unlikely to cause sustained inflation, and Cleveland Fed President Beth Hammack and Boston Fed President Susan Collins expressed their support for keeping interest rates at their current mildly restrictive level "for some time."
US Feb nonfarm payrolls unexpectedly fell by -92,000, weaker than expectations of a +55,000 increase and the biggest decline in four months. The Feb unemployment rate unexpectedly rose +0.1 to 4.4%, showing a weaker labor market than expectations of no change at 4.3%.
US Feb average hourly earnings rose +0.4% m/m and +3.8% y/y, stronger than expectations of +0.3% m/m and +3.7% y/y.
US Jan retail sales fell -0.2% m/m, a smaller decline than expectations of -0.3% m/m. Jan retail sales ex-autos were unchanged m/m, right on expectations.
US Jan consumer credit rose +$8.05 billion, weaker than expectations of +$12.65 billion.
Fed Governor Christopher Waller said, "Thinking about monetary policy going forward, the Iran war is unlikely to cause sustained inflation. That's one reason the Fed doesn't look at energy prices but looks at core prices, excluding energy, as core is a better predictor of future inflation."
Cleveland Fed President Beth Hammack said, "Under my base case, I think policy should be on hold for quite some time as we see evidence that inflation is coming down and the labor market stabilizes further."
Boston Fed President Susan Collins said, "My baseline features a still-uncertain inflation picture, with continued upside risks. This, combined with recent evidence suggesting a relatively stable labor market, in my view, argues for maintaining policy rates at their current, mildly restrictive levels for some time."
Swaps markets are discounting the odds at 5% 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) on Friday fell by -0.07%. The euro fell slightly on Friday after the Eurozone Q4 GDP was revised lower. Also, Friday's surge in crude oil prices to a 2.5-year high, along with Tuesday's surge in European natural gas prices to a 3-year high, is bearish for the euro as the Eurozone's dependence on imported energy undercuts the region's growth and purchasing power. The weaker dollar on Friday limited losses in the euro.
Eurozone Q4 GDP was revised lower to +0.2% q/q and +1.2% y/y from the previously reported +0.3% q/q and +1.3% y/y.
Swaps are discounting a 5% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) on Friday rose by +0.20%. The yen tumbled to a 6-week low against the dollar on Friday after crude oil prices surged to a 2.5-year high, potentially weighing on Japan's economy, which depends heavily on imported energy.
Losses in the yen were limited on Friday due to hawkish comments from BOJ Deputy Governor Ryozo Himino, who said Japan's economy is in an inflationary situation and the weaker yen is a factor pushing up consumer prices via higher import costs and corporate price-passing moves.
The markets are discounting a +6% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) on Friday closed up by +80.00 (+1.58%), and May COMEX silver (SIK26) closed up +2.130 (+2.59%).
Gold and silver prices rallied sharply on Friday as the war in the Middle East entered its seventh 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 numerous countries in the region, including Qatar, Saudi Arabia, Bahrain, Turkey, and Oman. In addition, fears that soaring energy costs will boost inflation have spurred buying of precious metals as an inflation hedge after crude prices surged to a 2.5-year high on Friday. In addition, Friday's weaker-than-expected US Feb payroll report is dovish for Fed policy and supportive of precious metals.
Gains in precious metals accelerated Friday after President Trump said the US doesn't want to negotiate an end to the war with Iran, and that "there will be no deal with Iran except unconditional surrender," fueling concerns the US may be girding for an extended conflict.
On the bearish side for precious metals Friday was hawkish comments from Cleveland Fed President Beth Hammack and Boston Fed President Susan Collins, who expressed their support for keeping interest rates at their current mildly restrictive level "for some time." Silver prices were also negatively impacted after the Eurozone Q4 GDP was revised downward, a bearish factor for industrial metals demand.
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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