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Dollar Sees Support from Higher T-note Yields

Barchart - Tue Feb 27, 9:47AM CST

The dollar index (DXY00) this morning is slightly higher on strength in T-note yields.  Gains in the dollar were limited after the Conference Board’s U.S. Feb consumer confidence index unexpectedly declined.

Today’s U.S. economic news was mixed for the dollar.  On the positive side, the Jan capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.1% m/m, right on expectations.  Also, the Dec S&P CoreLogic composite-20 home price index rose +6.13% y/y, stronger than expectations of +6.05% y/y and the largest increase in 13 months.  On the negative side, the Conference Board’s U.S. Feb consumer confidence index unexpectedly fell -4.2 to 106.7, weaker than expectations of an increase to 115.0.

The markets are discounting the chances for a -25 bp rate cut at 3% for the March 19-20 FOMC meeting and 21% for the following meeting on April 30-May 1.

EUR/USD (^EURUSD) this morning is down by -0.09%.  The euro is posting modest losses today on some mixed Eurozone economic news after Jan M3 money supply rose less than expected and the German Mar GfK consumer confidence rose as expected.  Also, a stronger dollar today is weighing on the euro.

Eurozone Jan M3 money supply rose +0.1% y/y, weaker than expectations of +0.3% y/y.

The German Mar GfK consumer confidence index rose +0.6 to -29.0, right on expectations.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on March 7 and 29% for the following meeting on April 113

USD/JPY (^USDJPY) this morning is down by -0.22%.  The yen moved higher today on the stronger-than-expected Japanese Jan consumer price report, which was hawkish for BOJ policy.  Limiting gains in the yen are higher T-note yields and today’s rally in the Nikkei Stock Index to a new record high, which curbed safe-haven demand for the yen.

Japan Jan national CPI eased to +2.2% y/y from +2.6% y/y in Dec, the smallest increase in 1-3/4 years but stronger than expectations of +1.9% y/y.  Jan national CPI ex-fresh food and energy eased to +3.5% y/y from +3.7% y/y in Dec, the smallest increase in 11 months but stronger than expectations of +3.3% y/y.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 26% for its next meeting on March 19 and 80% for the following meeting on April 26.

April gold (GCJ4) this morning is up +5.5 (+0.27%), and Mar silver (SIH24) is up +0.019 (+0.08%).  Precious metals this morning are slightly higher.  The ongoing geopolitical risks in the Middle East and Ukraine have boosted safe-haven demand for precious metals.  Silver garnered support from today’s news that the Dec S&P CoreLogic composite-20 home price index rose at its fastest pace in 13 months, a positive sign for industrial metals demand. 

Gains in metals were limited after Japan’s Jan national CPI rose more than expected, which was hawkish for BOJ policy.  Also, hawkish comments Monday night from Kansas City Fed President Schmid undercut precious metals when he said there is no need to cut interest rates right now.  Gold remains under pressure from the long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Monday. 



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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.

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