Dollar Weakens on Trump’s Tariff Comments While Euro Surges
The dollar index (DXY00) fell by -0.53% on Friday, reaching a 5-week low. President Trump’s more lenient stance on tariffs, expressed during a Fox News interview, has impacted the dollar after he stated that he would “rather not” impose tariffs against China. Additionally, strong performance from the euro contributed to the dollar’s decline, with EUR/USD hitting a 5-week high after optimistic Eurozone January PMIs. U.S. economic data was mixed, showing growth in manufacturing and existing home sales, but a drop in consumer sentiment weighed on expectations.
Mixed Signals from U.S. Economic Data
The January S&P manufacturing PMI in the U.S. increased by +0.7 to 50.1, surpassing expectations of 49.8 and marking the best result in 7 months.
Conversely, the University of Michigan’s January consumer sentiment index was revised down by -2.1 to 71.1, falling short of expectations that had anticipated no change from 73.2.
In housing, December existing home sales rose by +2.2% month-over-month to a 10-month high of 4.24 million, above the forecast of 4.20 million.
Currently, markets are assigning a 1% probability to a -25 basis point rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on January 28-29.
Eurozone Economic Strength Boosts Euro
EUR/USD (^EURUSD) rose +0.78% on Friday, reaching a 5-week high. The euro gained momentum following better-than-expected Eurozone PMI reports. However, potential gains might be limited, as expectations increase for a -25 basis point interest rate cut by the European Central Bank (ECB) in the upcoming meeting.
For context, the Eurozone’s January S&P manufacturing PMI increased by +1.0 to 46.1, exceeding expectations of 45.4. Additionally, the January S&P composite PMI improved by +0.6 to 50.2, beating the forecast of 49.7 and reaching the best level in 5 months.
Swaps indicate a 97% chance of a -25 basis point rate cut by the ECB on January 30.
Japanese Yen Recovers Amid BOJ Rate Hike
USD/JPY (^USDJPY) dipped -0.13% on Friday. The yen showed moderate gains following the Bank of Japan’s (BOJ) decision to raise interest rates by 25 basis points. BOJ’s revised forecast for core CPI in 2025 also provides support, as it hints at a stricter monetary policy. Additionally, Japan’s December consumer price index revealed the fastest price increase in nearly 2 years.
However, gains for the yen were capped as BOJ Governor Ueda offered limited guidance on future rate hikes. Moreover, Japan’s January Jibun Bank manufacturing PMI dropped -0.8 to 48.8, recording the weakest level in 10 months.
Year-on-year, Japan’s national CPI rose by +3.6%, exceeding the expected +3.4% and reflecting strong inflationary trends.
The BOJ’s decision to elevate the overnight call rate to 0.50% accompanied a commitment from Governor Ueda to continue raising rates if economic forecasts are met. The BOJ maintained its 2025 GDP growth estimate at +1.1% while increasing the core CPI projection to +2.4% from +1.9%.
Precious Metals See Gains Amid Dollar Weakness
February gold (GCG25) closed up +13.90 (+0.50%), while March silver (SIH25) rose +0.343 (+1.11%). Precious metals experienced moderate gains on Friday, with gold reaching a 2.5-month high. The dollar’s slump to a 5-week low is seen as bullish for metals. Furthermore, President Trump’s softened tariff stance has lessened inflation concerns and supports gold’s appeal as a safe-haven asset. Silver also benefited from the positive industrial activity news in the U.S. and Eurozone, suggesting strong demand for industrial metals.
Despite these positives, the BOJ’s interest rate hike on Friday may have bearish implications for precious metals. In addition, the BOJ’s raised core CPI forecast could signal continued rate hikes, which generally put downward pressure on metal prices.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
