The dollar index (DXY00) dropped by -0.29% on Friday. The currency gave up its early gains and declined after the University of Michigan’s March consumer sentiment index was revised down to a 2-1/3 year low. Further, Friday’s economic data indicated that February personal spending rose less than anticipated, contributing negatively to the dollar’s performance.

Comments from Richmond Fed President Barkin on Thursday weighed on the dollar as he noted that rapid changes to U.S. trade policy have fostered “a sense of instability” within the business community, potentially dampening demand. The dollar continued to decline on remarks by San Francisco Fed President Daly, who stated that the Fed could afford to assess the impacts of tariffs on the economy, while maintaining projections for two 25 basis point interest rate cuts this year.

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Initially, the dollar advanced as trade tensions pressured stocks and heightened the demand for dollar liquidity. Additionally, hawkish comments from Boston Fed President Collins buoyed the dollar when she suggested that it’s “inevitable” tariffs will elevate inflation. A revision upward in the University of Michigan’s March U.S. inflation expectations indicator also provided support for a hawkish Fed stance.

U.S. February personal spending increased by +0.4% month-over-month, falling short of expectations of +0.5%, while personal income saw a monthly rise of +0.8%, outpacing expectations of +0.4%—marking the largest increase in 13 months.

The February core PCE price index grew by +0.4% month-over-month and +2.8% year-over-year, exceeding expectations of +0.3% and +2.7%, respectively.

The University of Michigan’s March consumer sentiment index was revised downward by -0.9 to a low of 57.0, beneath expectations for no change at 57.9.

Additionally, the March 1-year inflation expectations indicator increased to a 2-1/3 year high of +5.0%, surpassing the expectation of +4.9%. The March 5-10 year inflation expectations also rose, reaching a 32-year high of +4.1% year-over-year, exceeding the forecast of +3.9%.

Current market probabilities indicate a 21% chance of a -25 basis point rate cut following the May 6-7 FOMC meeting.

The EUR/USD (^EURUSD) rose by +0.23% on Friday, as the euro rebounded from early losses when the dollar retreated, resulting in short covering for the euro. Additionally, the euro found support as the ECB’s February inflation expectations surpassed expectations, signaling a hawkish shift for ECB policy. An exclusive Bloomberg report indicated the European Union is considering concessions to the U.S. to negotiate a partial removal of previously implemented and impending tariffs.

Initially, the euro moved lower in response to an unexpected decline in the Eurozone’s March economic confidence index and a weakening labor market, as Germany’s March unemployment rate unexpectedly rose to a 4-1/2 year high. Furthermore, falling German bund yields amid a 3-week low of 2.707% led to diminished interest rate differentials for the euro.

The Eurozone’s March economic confidence index fell unexpectedly by -1.1 to 95.2, diverging from expectations for an increase to 96.7.

The ECB’s February 1-year inflation expectations remained stable at 2.6%, better than the projected 2.5%.

Meanwhile, Germany’s March unemployment figures rose by +26,000, indicating a weaker market than the anticipated +10,000. The unemployment rate ticked up by +0.1 to a 4-1/2 year high of 6.3%, contrary to expectations for no change at 6.2%.

Market swaps currently suggest an 85% likelihood of a -25 basis point rate cut by the ECB in the upcoming April 17 policy meeting.

The USD/JPY (^USDJPY) fell by -0.75% on Friday. However, the yen rallied from a 3-1/2 week low against the dollar due to signs of rising inflation: Tokyo’s March CPI increased by +2.9% year-over-year, exceeding the forecast of +2.7%. Additionally, the Nikkei Stock Index’s decline to a 2-week low heightened demand for the yen as a safe haven.

The March Tokyo CPI, excluding fresh food and energy, rose by +2.2% year-over-year, which was also stronger than projections of +1.9% and marked the largest increase within a year.

In the commodities market, April gold (GCJ25) closed up +25.50 (+0.83%) while May silver (SIK25) closed down -0.269 (-0.77%). Precious metals saw mixed results on Friday, with April gold achieving a record nearest-futures high of $3,094.90 an ounce. Silver, however, retreated from its 13-year nearest-futures high.

Concerns related to the trade war have amplified the demand for precious metals, especially after President Trump announced a 25% tariff on U.S. auto imports earlier in the week. Moreover, lower global bond yields provided additional support for precious metals, while ongoing geopolitical tensions in the Middle East have also sustained demand. Recent U.S. military actions have intensified these fears, particularly as Israel resumes airstrikes in Gaza, affecting sentiment in the market.

Friday’s economic reports indicated an unexpected uptick in the core PCE price index, along with upward revisions in the March inflation expectations, indicating a potential bearish outlook for precious metals. Furthermore, comments from Boston Fed President Collins about tariffs potentially fueling inflation added further pressure on precious metals as traders anticipate a trade war that could impede industrial demand.

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 are for informational purposes only. For more details, please refer to the Barchart Disclosure Policy
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