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Dollar Slips as Stocks Rebound and Euro Strengthens on the ECB’s Rate Hike

Barchart - Thu Mar 16, 2:48PM CDT
Dollars and Wallets - Dollar Bill on Grey Background

The dollar index (DXY00) on Thursday fell by -0.23%.  Reduced global banking concerns Thursday fueled a rally in stocks that curbed the liquidity demand for the dollar.  Also, Thursday’s action by the ECB to raise interest rates by 50 bp instead of 25 bp supported the euro and undercut the dollar.

Thursday’s U.S. economic news was mixed for the dollar.  On the bearish side, the Mar Philadelphia Fed business outlook survey rose +1.1 to -23.2, weaker than expectations of -15.0.  Also, the Feb import price index ex-petroleum unexpectedly fell -0.4% m/m, the biggest decline in 7 months and weaker than expectations of an increase of +0.1% m/m, which was a dovish factor for Fed policy.

On the bullish side, weekly initial unemployment claims fell -20,000 to 192,000, showing a stronger labor market than expectations of 205,000.  Also, Feb housing starts rose +9.8% m/m to a 5-month high of 1.450 million, stronger than expectations of 1.310 million.  In addition, Feb building permits, a proxy for future construction, rose +13.8% m/m to a 5-month high of 1.524 million, stronger than expectations of 1.343 million.

EUR/USD (^EURUSD) on Thursday rose by +0.38%.  Reduced European banking concerns boosted the euro Thursday after Credit Suisse AG rallied more than +18% after it arranged to borrow from the Swiss National Bank’s liquidity facility.  EUR/USD extended its gains Thursday after the ECB raised interest rates by +50 bp and raised its 2023 Eurozone GDP estimate.

The ECB raised its main refinancing rate by +50 bp to 3.50% and said inflation is projected to remain too high for too long.  However, the ECB also refrained from signaling future rate moves, saying it would be data-dependent.

The ECB raised its 2023 Eurozone GDP forecast to +1.0% from a prior forecast of +0.5% and cut its 2023 inflation forecast to +5.3% from a prior estimate of +6.3%.

USD/JPY (^USDJPY) on Thursday rose by +0.03%.  The yen Thursday fell back from a 1-month high against the dollar and posted modest losses.  A rebound in T-note yields Thursday sparked long liquidation in the yen.  The yen Thursday initially moved higher on safe-haven buying from the turmoil in the U.S. and European banking systems.

Thursday’s Japanese economic news was mixed for the yen.  On the bearish side, Jan industrial production was revised downward by -0.7 to -5.3% m/m from the initially reported -4.6% m/m, the biggest decline in 8 months.  Also, Japan trade data was weaker than expected as Japan Feb exports rose +6.5% y/y, weaker than expectations of +7.0% y/y, and Feb imports rose +8.3% y/y, weaker than expectations of +12.4% y/y.  Conversely, Jan core machine orders rose +9.5% m/m, stronger than expectations of +1.4% m/m and the largest increase in 2-1/4 years. 

April gold (GCJ3) on Thursday closed down -8.30 (-0.43%), and May silver (SIK23) closed down -0.190 (-0.87%).  Precious metals Thursday closed moderately lower.  An easing of U.S. and European banking concerns Thursday sparked a rally in stocks and reduced the safe-haven demand for precious metals.  Also, higher global bond yields Thursday weighed on metals prices.   In addition, Thursday’s +50 bp ECB rate hike weighed on gold as speculation had risen that the banking turmoil might prompt the ECB to raise interest rates by only +25 bp. A weaker dollar Thursday limited losses in metals prices. 

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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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