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Dollar Dragged Lower by Decline in T-Note Yields

Barchart - Fri Mar 17, 2:46PM CDT
Dollars and Wallets - Pile of Money

The dollar index (DXY00) on Friday fell by -0.62% on a sharp decline in T-note yields.  Also, hawkish ECB comments boosted EUR/USD and undercut the dollar.  In addition, a decline in the University of Michigan’s March U.S inflation expectations index was dovish for Fed policy and bearish for the dollar.

Friday’s U.S. economic news was mixed for the dollar.  On the bearish side, the University of Michigan’s March U.S. consumer sentiment index unexpectedly fell -3.6 to 63.4, weaker than expectations of no change at 67.0. Also, the University of Michigan’s March U.S 1-year inflation expectations fell -0.3 to a 2-year low of 3.8%, and the 5-10 year inflation expectations index fell -0.1 to a 6-month low of 2.8%.  On the bullish side, Feb manufacturing production unexpectedly rose +0.1% m/m, stronger than expectations of a -0.3% m/m decline.

EUR/USD (^EURUSD) on Friday rose by +0.65%.  Dollar weakness Friday sparked short covering in the euro.  Also, hawkish comments Friday from several ECB policymakers gave EUR/USD a boost when they said they expect the ECB to continue raising interest rates as core inflation in the Eurozone remains "stubbornly sticky."

Eurozone Q4 labor costs rose a record +5.7% y/y, which is hawkish for ECB policy and supportive for EUR/USD.

ECB Governing Council member Simkus said "underlying price growth "shows no sign of slowing yet," so it is "too early for the ECB to conclude that the backbone of rapid inflation has been broken and interest-rate hikes can be stopped."

ECB Governing Council member Simkus expects the ECB to continue raising interest rates as "inflation trends haven't disappeared." 

ECB Governing Council member Kazimir said core inflation in the Eurozone is "stubbornly sticky," and the ECB must continue tightening monetary policy despite current events.

USD/JPY (^USDJPY) on Friday fell sharply by -1.47%.  The yen Friday rallied to a 1-month high against the dollar.  A sharp decline in T-note yields Friday was bullish for the yen. Also, ongoing U.S. and European banking woes have boosted the safe-haven demand for the yen.  In addition, the yen garnered support from Friday’s better-than-expected economic news that showed the Jan tertiary industry index rose +0.9% m/m, stronger than expectations of +0.5% m/m and the largest increase in 8 months. 

April gold (GCJ3) on Friday closed up +50.50 (+2.63%), and May silver (SIK23) closed up +0.770 (+3.55%).  Precious metals Friday rallied sharply, with gold climbing to an 11-month high and silver posting a 5-week high.  A weaker dollar Friday was bullish for metals prices.  Also, sharply lower global bond yields Friday were supportive for precious metals.  In addition, the banking turmoil in the U.S. and Europe is boosting the safe-haven demand for precious metals.  Fund buying of gold is supporting prices as gold holdings in exchange-traded funds (ETFs) have risen four straight days through Thursday to a 3-week high.

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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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.