Dollar Index Rises as Stocks Weaken and Fed Officials Signal Steady Rates
The dollar index (DXY00) increased by +0.21% on Friday, reaching a two-week high. Weaker stock performance that day boosted demand for the dollar. Comments from New York Fed President Williams and Chicago Fed President Goolsbee further supported the dollar, as both expressed their backing for a steady monetary policy from the Federal Reserve.
New York Fed President Williams stated, “The current modestly restrictive stance of the Fed’s monetary policy is entirely appropriate given the solid labor market and inflation still running somewhat above our 2% goal.”
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Chicago Fed President Goolsbee also indicated his preference for maintaining the current Fed policy, highlighting the strength in recent economic data. He emphasized the importance of stability, saying the Fed “needs to be a steady hand and take the long view.”
In the markets, traders are currently estimating a mere 18% chance of a -25 basis points rate cut after the FOMC meeting scheduled for May 6-7.
Eurozone Economic Signals Weigh on Euro
The EUR/USD (^EURUSD) fell by -0.30% on Friday, marking a new two-week low. The euro’s decline followed the dollar’s strength and dovish remarks from ECB Governing Council member Stournaras. He noted, “Everything points in the direction of an ECB rate cut in April.” Additionally, fears regarding potential US trade tariffs and their adverse effects on the Eurozone economy contributed to the euro’s losses. The decline in the euro accelerated after the Eurozone’s consumer confidence index unexpectedly fell for March.
Specifically, the Eurozone’s March consumer confidence index dropped -0.9 to -14.5, which was weaker than anticipated, as the consensus had predicted an increase to -13.0.
Despite Stournaras’s comments regarding a potential ECB rate cut, he added that it is too early to confirm such a move. Market swaps currently reflect a 59% chance of a -25 basis points rate cut during the ECB’s policy meeting on April 17.
Yen Faces Challenges Amid Global Economic Concerns
The USD/JPY (^USDJPY) rose by +0.30% on Friday. The yen lost ground after initially gaining due to concerns that US tariffs might hinder global economic activity, potentially influencing the Bank of Japan’s ability to increase interest rates. A rebound in Treasury yields also contributed to the yen’s decline. Earlier, the yen had been buoyed by Japan’s February national CPI, which rose by +3.7% year-over-year, surpassing expectations of +3.5%. Core inflation, excluding fresh food and energy, also strengthened by +2.6%, matching forecasts and representing the strongest increase in 11 months.
Precious Metals Retreat on Strong Dollar and Economic Concerns
April gold (GCJ25) closed down -22.40 (-0.74%), while May silver (SIK25) decreased by -0.505 (-1.49%). Precious metals faced headwinds on Friday, influenced by the dollar’s rally and climbing T-note yields, leading to long liquidations in this sector. Additionally, hawkish statements from Fed officials contributed to the downward pressure on precious metals. Silver prices specifically were affected by worries that US trade policies might stifle economic growth, consequently dampening industrial metals demand.
Though the precious metals market showed weakness, persistent concerns regarding the impact of US tariffs on global economic growth continue to create safe-haven demand. Geopolitical uncertainties, particularly in the Middle East, also heightened demand for precious metals. This week, Israel resumed airstrikes in Gaza, ending a recent ceasefire with Hamas, alongside ongoing US military actions in Yemen against Houthi rebels. These developments, coupled with Friday’s stock market decline, have reinforced the appeal of safe-haven assets.
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
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
