Dollar Index Hits Four-Month Low Amid Economic Concerns

The dollar index (DXY00) is down by -0.31%, reaching a four-month low. This decline has persisted throughout the week and is largely driven by concerns surrounding the impact of US tariffs on the economy. Losses worsened today following a dovish February payroll report, which indicated that nonfarm payrolls and average hourly earnings increased less than anticipated. Additionally, the unemployment rate rose unexpectedly. However, losses for the dollar have been somewhat mitigated by hawkish statements from Atlanta Fed President Bostic, who indicated a preference for maintaining steady monetary policy for the near future.

Looking ahead, market participants are awaiting Fed Chair Powell’s keynote speech scheduled later today at Chicago Booth’s 2025 US Monetary Policy Forum. This address is expected to shed more light on the economic outlook.

The Barchart Brief: Your FREE insider update on the biggest news stories and investing trends, delivered midday.

In February, US nonfarm payrolls increased by +151,000, falling short of expectations of +160,000. Moreover, the January figures were revised downwards to +125,000 from +143,000. The unemployment rate rose unexpectedly by +0.1% to 4.1%, contrary to predictions that it would remain unchanged at 4.0%.

Average hourly earnings in February showed an increase of 4.0% year-over-year, up from a revised 3.9% in January, but also below expectations of 4.1%.

On Thursday evening, Atlanta Fed President Bostic commented that the trajectory of the economy remains “very much up in the air,” hinting that it might take several months before the effects of President Trump’s policies and other influencing factors become clear. He suggested maintaining interest rates steady until at least late spring.

The markets are currently pricing in a 4% chance of a -25 basis point rate cut at the upcoming FOMC meeting on March 18-19.

EUR/USD and Eurozone Economic Indicators

Today, EUR/USD (^EURUSD) is up by +0.69%, reaching a new four-month high. Today’s weakness in the dollar is beneficial for the euro. Additionally, the upward revision of Eurozone Q4 GDP has contributed to this rise. Gains in the euro were further bolstered by comments from ECB Governing Council member Muller, who stated, “The ECB needs to be increasingly cautious about further interest rate cuts.”

Eurozone Q4 GDP was revised upward to +0.2% quarter-over-quarter and +1.2% year-over-year, compared to previous estimates of +0.1% q/q and +0.9% y/y. However, the weaker-than-expected German January factory orders report, which saw a decline of -7.0% month-over-month—much worse than the anticipated -2.5%—was a bearish signal for the euro.

Muller also commented on the ECB’s position regarding interest rates, emphasizing caution due to factors like tariffs and increased defense spending that could accelerate price rises. Currently, swaps indicate a 63% probability of a -25 basis point rate cut by the ECB at the April 17 policy meeting.

USD/JPY Movement and Precious Metals Update

In currency movements, USD/JPY (^USDJPY) is down by -0.32%. The yen has climbed to a five-month high against the dollar, supported by a significant demand from Japan’s largest labor union for the most considerable wage increase since 1993, potentially influencing the Bank of Japan (BOJ) to continue raising interest rates. Moreover, today’s decline in T-note yields has contributed positively to the yen.

However, the yen’s gains have been limited due to a Bloomberg report suggesting that the BOJ may choose to keep interest rates steady during its meeting on March 18-19, as global economic uncertainties require careful monitoring.

In precious metals, April gold (GCJ25) is up +7.80 (+0.27%), while May silver (SIK25) has decreased by -0.218 (-0.65%). The mixed performance of precious metals today is influenced by the weaker dollar, which has fallen to a four-month low. Continued safe-haven demand for precious metals is evident, driven by US tariffs imposed recently against Canada, China, and Mexico. In response, Canada and China enacted retaliatory tariffs against US goods. Additionally, growing fund buying has pushed gold positions in ETFs to a 15-month high as of Thursday.

Despite this, hawkish tones from central bank officials are negatively impacting precious metals prices. Bostic’s preference for holding interest rates firm until late spring, alongside Muller’s cautious stance on interest rates, has created downward pressure on metal prices. Furthermore, declining inflation expectations are limiting the appeal of precious metals as an inflation hedge, following a drop in the US 10-year breakeven inflation rate to a 2-1/4 month low. Silver is also facing pressure amidst concerns that US tariff actions may initiate a global trade war, which could hinder economic growth and reduce demand for industrial metals.

On the date of publication,
Rich Asplund did not hold (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 review the Barchart Disclosure Policy
here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.