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Dollar Slightly Lower on Strength in Stocks

Barchart - Fri Feb 9, 2:52PM CST

The dollar index (DXY00) on Friday fell by -0.04%.  The dollar moved slightly lower Friday after the U.S. Bureau of Labor Statistics kept the U.S. Q4 core CPI unrevised at 3.3% y/y, a dovish factor for Fed policy.  Also, Friday’s rally in the S&P 500 to a new record high reduced the liquidity demand for the dollar.  Higher T-note yields on Friday and hawkish Fed comments limited losses in the dollar.

The U.S. Bureau of Labor Statistics kept the U.S. Q4 core CPI unrevised at a +3.3% annualized increase.

Fed comments on Friday were slightly hawkish and supportive of the dollar.  Dallas Fed President Logan said she sees "no urgency to make any additional adjustments to interest rates at this time while we get a better understanding and build our confidence whether the progress that we've seen in inflation will be sustained over the medium run."  Also, Atlanta Fed President Bostic said the Fed must "stay the course" to ensure inflation returns to its 2% target.

The markets are discounting the chances for a -25 bp rate cut at 19% for the March 19-20 FOMC meeting and at 73% for the following meeting on April 30-May 1.

EUR/USD (^EURUSD) on Friday rose by +0.06%.  The euro on Friday moved slightly higher due to weakness in the dollar.  Also, hawkish comments from ECB Governing Council member Kazaks pushed the 10-year German bund yield up to a 2-1/4 month high and strengthened the euro’s interest rate differentials when he said market expectations of ECB interest rate cuts this spring were too optimistic.

ECB Governing Council member Kazaks said, "At the moment, there are expectations that the ECB could cut interest rates in the spring at the March or April meetings, and I wouldn't be that optimistic."

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 9% for its next meeting on March 7 and 53% for the following meeting on April 11.

USD/JPY (^USDJPY) on Friday fell by -0.02%.  The yen on Friday recovered from a 2-1/4 month low against the dollar and ended little changed on some pre-weekend short covering.  The yen on Friday initially declined on dovish comments from BOJ Governor Ueda who said financial conditions in Japan will remain accommodative even after the BOJ ends negative interest rates.  Also, Friday’s rally in the Nikkei Stock Index to a 34-year high reduced safe-haven demand for the yen.  Higher T-note yields on Friday were another negative for the yen.

BOJ Governor Ueda said, "Even if we end minus rates, the accommodative financial conditions will likely continue," based on the BOJ's economic outlook.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 32% for its next meeting on March 19 and 71% for the following meeting on April 26.

April gold (GCJ4) Friday closed -9.20 (-0.45%), and Mar silver (SIH24) closed -0.042 (-0.19%).  Precious metals on Friday posted moderate losses.  Higher global bond yields on Friday weighed on the prices of precious metals.  Also, Friday’s strength in global equity markets has reduced safe-haven demand for precious metals.  In addition, hawkish comments Friday from Atlanta Fed President Bostic and Dallas Fed President Logan undercut precious metals when they both said they favored waiting before cutting interest rates.  Gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Wednesday. 

A bullish factor for precious metals on Friday was a weaker dollar.  Also, rising inflation expectations boosted demand for precious metals as an inflation hedge after the 10-year breakeven inflation rate Friday rose to a 1-1/2 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.

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