US Economic Landscape
Embarking on a strong upward trajectory, the dollar index (DXY00) triumphantly reached a 6-week zenith, marking a remarkable upsurge of +0.20%. The ascent was spurred by Fed Governor Waller’s affirmations on Wednesday night, echoing a sentiment of patience in the Fed’s approach towards monetary policy adjustments. The dollar received a further boost from Thursday’s series of rosy US economic reports, painting a bullish picture for Federal Reserve policy.
Unexpectedly, US weekly initial unemployment claims saw a dip of -2,000 to 210,000, defying projections that anticipated an uptick to 212,000. This served as a testament to the robust labor market, outshining forecasts.
Noteworthy revisions to US Q4 GDP painted a brighter economic portrait, showcasing an upward adjustment to +3.4% (q/q annualized) from an initially anticipated 3.2%, with Q4 personal consumption revised upwards to a robust 3.3%. However, the Q4 core PCE price index experienced a slight dip to +2.0% (q/q annualized), coming in marginally below expectations.
Fed Insights and Market Trends
Fed Governor Waller’s commentary on recent inflation figures as “disappointing” has ignited a discourse on the trajectory of rate cuts, hinting at a potential delay or reduction in their frequency as a response to the latest data indicators. Waller’s stance on the reinforcing strength of economic output and labor market juxtaposed against waning progress in curbing inflation has paved the way for a tempered rate cut sentiment.
Unfolding in the markets are negotiations on the probability of a -25 bp rate trim dwindling to 10% for the impending FOMC gathering on April 30-May 1, while shooting up to 67% for the subsequent June 11-12 meeting.
Eurozone and ECB Developments
The EUR/USD (^EURUSD) encountered a stark descent to a 5-week low on Thursday, registering a decline of -0.39%. The dollar’s assertive performance cast a shadow over the euro’s resilience. Furthermore, Eurozone money supply data and German retail sales reports from Thursday showcased dovish tendencies that weighed heavily on ECB policy.
Comments from ECB Governing Council members Panetta and Villeroy de Galhau hinted at impending monetary easing due to emerging conditions, construing a call for rate adjustments in the upcoming spring.
Divergent Central Bank Policies
Contrastingly, USD/JPY (^USDJPY) experienced an uptick of +0.06% on Thursday, with the yen relinquishing initial gains in light of amplified T-note yields. Speculation on Japanese intervention to fortify the yen followed its recent plunge to a near 34-year low against the dollar, with Prime Minister Kishida and other officials contemplating appropriate measures for fluctuating forex movements.
Forecasts indicate a 2% likelihood of a +10 bp rate hike by the BOJ at the imminent April 26 meeting, nudging up slightly to 9% for the subsequent June 14 assembly.
Precious Metals Performance
April gold (GCJ4) closed up +1.22% on Thursday, while May silver (SIK24) inched up by +0.66%, reflecting modest gains in the precious metals arena. Ahead of Friday’s US Feb PCE core deflator report, precious metals observed a surge in anticipation while also navigating the impact of geopolitical tensions and dovish ECB sentiments.
Despite the uptick in metals, the dollar index’s ascendancy to a 6-week peak wielded downward pressure, coupled with Waller’s statements against precipitous rate cuts. Adding to the retractions were escalating global bond yields, tugging the precious metals market in an opposing direction.
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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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
