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Dollar Climbs on Weakness in Stocks

Barchart - Wed Feb 28, 10:12AM CST

The dollar index (DXY00) this morning is up by +0.18% at a 1-week high. Weakness in stocks today has boosted liquidity demand for the dollar.  Today’s revised U.S. Q4 GDP report was mixed for the dollar after Q4 GDP was revised lower, but Q4 personal consumption and the Q4 core PCE price index were revised upward.  A decline in T-note yields today is limiting the upside in the dollar. 

Today’s revised U.S. Q4 GDP report was mixed for the dollar.  On the positive side, Q4 personal consumption was unexpectedly revised upward to +3.0% from +2.8%, stronger than expectations of +2.7%.  Also, the Q4 core PCE price index was revised upward to +2.1% from +2.0%.  On the negative side, Q4 GDP was revised downward by -0.1 to +3.2% (q/q annualized) from the previously reported +3.3%.

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

EUR/USD (^EURUSD) this morning is down by -0.10% and fell to a 1-week low.  Dollar strength today is weighing on the euro.  Also, an unexpected decline in today’s Eurozone Feb economic confidence report was bearish for the euro.  Losses in the euro are limited by hawkish comments from ECB Vice President Guindos and ECB Governing Council members Kazimir and Kazaks, who said they favored the ECB waiting before it cuts interest rates.

The Eurozone Feb economic confidence index unexpectedly fell -0.7 to 95.4, weaker than expectations of an increase to 96.6.

ECB Vice President Guindos said, "When the data we receive on inflation, and underlying inflation, make it clear that we're approaching 2%, monetary policy will be modified."

ECB Governing Council member Kazaks said the ECB shouldn't rush to cut interest rates as doing so would risk harsher action being required later on.

ECB Governing Council member Kazimir said there's "no reason for the ECB to rush an interest rate cut," and he favors June for the timing of the first rate cut.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 6% for its next meeting on March 7 and 34% for the following meeting on April 113

USD/JPY (^USDJPY) this morning is up by +0.13%.  The yen retreated against the dollar today on dovish comments from BOJ Executive Director Shimizu, who said there hasn’t been enough certainty that the BOJ’s stable inflation goal will be achieved.  A decline in T-note yields today is limiting losses in the yen.

The Japan Dec leading index CI was revised upward by +0.2 to a 14-month high of 110.2 from the previously reported 110.0.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 21% for its next meeting on March 19 and 89% for the following meeting on April 26.

April gold (GCJ4) this morning is down -2.6 (-0.13%), and Mar silver (SIH24) is down -0.152 (-0.67%).  Precious metals today are moderately lower, with silver falling to a 2-week low.  Today’s rally in the dollar index to a 1-week high is bearish for metals.  Also, hawkish comments from ECB Vice President Guindos and ECB Governing Council member Kazimir were bearish for precious metals when they said they favored waiting before the ECB cuts interest rates. Silver also came under pressure after the U.S. Q4 GDP was revised lower, a negative factor for industrial metals demand. 

On the positive side for precious metals is today’s decline in global bond yields.  Also, the weakness in stocks today has boosted some safe-haven demand for precious metals.  In addition, the ongoing geopolitical risks in the Middle East and Ukraine have boosted safe-haven demand for precious metals. 



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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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