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Dollar Slips and Gold Rises on Weaker-Than-Expected U.S. Economic News

Barchart - Fri Mar 1, 9:31AM CST

The dollar index (DXY00) this morning is down by -0.10%.  The dollar fell from a 1-1/2 week high today and turned lower on weaker-than-expected U.S. economic news on Feb ISM manufacturing, Jan construction spending, and the University of Michigan U.S. Feb consumer sentiment. A decline in T-note yields today also weighed on the dollar.

The U.S. Feb ISM manufacturing index unexpectedly fell -1.3 to 47.8, weaker than expectations of an increase to 49.5. 

U.S. Jan construction spending unexpectedly fell -0.2% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 15 months.

The University of Michigan U.S. Feb consumer sentiment index was revised downward by -2.7 to 76.9, weaker than expectations of no change at 79.6.

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 up by +0.29%.  The euro today is moderately higher and garnered support on stronger-than-expected Eurozone economic news.  Eurozone Feb CPI rose more than expected, and the Jan unemployment rate fell to a record low, hawkish factors for ECB policy.  Also, the Feb S&P manufacturing PMI was revised higher. In addition, the euro rose on hawkish comments from ECB Governing Council member Holzmann, who warned against cutting interest rates too early.   

Eurozone Feb CPI eased to +2.6% y/y from +2.8% y/y in Jan, stronger than expectations of +2.5% y/y. Feb core CPI eased to +3.1% y/y from +3.3% y/y in Jan, the slowest pace of increase in almost two years.

The Eurozone Jan unemployment rate fell -0.1 to a record low of 6.4%, right on expectations.

The Eurozone Feb S&P manufacturing PMI was revised upward by +0.4 to 46.5 from the previously reported 46.1.

ECB Governing Council member Holzmann warned against cutting interest rates too early after today's news showed Eurozone price growth slowed less than expected in February.

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 18% for the following meeting on April 113

USD/JPY (^USDJPY) this morning is up by +0.13%.  The yen weakened today on comments from BOJ Governor Ueda, who said the BOJ’s price target was not yet in sight.  Losses in the yen are limited by a decline in T-note yields and from better-than-expected economic news on Japan Feb consumer confidence and on Japan’s labor market after the jobless rate fell to a nearly 4-year low. 

BOJ Governor Ueda said, "We are not yet in a position to foresee the achievement of a sustainable and stable inflation target," dampening expectations that the BOJ may exit its negative interest rate policy as soon as this month's policy meeting. 

The Japan Feb consumer confidence index rose +1.1 to a 2-1/4 year high of 39.1, stronger than expectations of 38.3.

The Japan Jan jobless rate fell -0.1 to a nearly 4-year low of  2.4%, right on expectations.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 31% for its next meeting on March 19 and 78% for the following meeting on April 26.

April gold (GCJ4) this morning is up +12.6 (+0.61%), and May silver (SIK24) is up +0.080 (+0.35%).  Precious metals this morning are moderately higher, with gold posting a 4-week high.  A weaker dollar today is supportive of metals.  Also, lower global bond yields today are bullish for precious metals.  In addition, today’s weaker-than-expected U.S. economic reports on Feb ISM manufacturing and Jan construction spending are dovish for Fed policy and bullish for precious metals. 

On the bearish side, silver prices were undercut after the U.S. Feb ISM manufacturing index contracted more than expected, and Jan construction spending unexpectedly declined, negative signs for industrial metals demand.  Also, 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 Thursday. 



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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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