Dollar Declines and Gold Jumps to a Record High on US Auto Tariffs
The dollar index (DXY00) Thursday fell by -0.21%. The dollar was under pressure Thursday due to President Trump's announcement Wednesday evening of 25% tariffs on US auto imports, which may undercut US economic growth. The dollar also fell on Thursday's dovish economic news, which showed that US Q4 personal consumption and the Q4 core PCE price index were revised lower. Losses in the dollar were limited by stronger-than-expected US economic news, including the GDP revision, weekly jobless claims, and Feb pending home sales.
US weekly initial unemployment claims fell -1,000 to 224,000, showing a slightly stronger labor market than expectations of an increase to 225,000.
US Q4 GDP was revised upward by 0.1 to +2.4% (q/q annualized), stronger than expectations of no change at 2.3%. Q4 personal consumption was revised downward to +4.0% from the previously reported +4.2%, and the Q4 core price index was revised lower to +2.6% from the previously reported +2.7%.
US Feb pending home sales rose +2.0% m/m, stronger than expectations of +1.0% m/m.
The markets will focus on Friday's Feb personal spending report (expected +0.5% m/m) and the Feb personal income report (expected +0.4% m/m). Also, the Feb core PCE price index, the Fed's preferred inflation gauge, is expected to rise +0.3% m/m and +2.7% y/y. Finally, on Friday, the revised March University of Michigan US consumer sentiment index is expected to remain unchanged at 57.9.
The markets are discounting the chances at 16% for a -25 bp rate cut after the May 6-7 FOMC meeting.
EUR/USD (^EURUSD) Thursday rose by +0.40% after recovering from a 3-week low. Short covering emerged in the euro Thursday on hawkish comments from ECB Governing Council member Wunsch, who said the ECB should consider holding interest rates steady at its next meeting due to US trade policy complications. The euro Thursday was undercut by weaker interest rate differentials as the 10-year German bund yield fell to a 3-week low.
Eurozone Feb M4 money supply rose +4.0% y/y, stronger than expectations of +3.8% y/y and the fastest pace of increase in 2-1/4 years.
ECB Governing Council member Wunsch said the ECB should consider holding interest rates steady at its next meeting due to US trade policy complications.
Swaps are discounting the chances at 75% for a -25 bp rate cut by the ECB at the April 17 policy meeting.
USD/JPY (^USDJPY) Thursday rose by +0.37%. The yen on Thursday dropped to a 3-1/2 week low against the dollar after President Trump imposed 25% tariffs on US auto imports, which may derail economic growth and keep the BOJ from raising interest rates. Also, higher T-note yields Thursday weighed on the yen. Losses in the yen were limited after the 10-year Japan JGB bond yield rose to a 16-year high Thursday of 1.596%, strengthening the yen's interest rate differentials.
April gold (GCJ2 5) Thursday closed up +38.50 (+1.27%), and May silver (SIK2 5) closed up +0.861 (+2.52%). Precious metals settled moderately higher on Thursday, with April gold posting a contract high and nearest-futures (H25) gold posting a record high of $3,071.30 an ounce. Silver also posted a 12-year nearest-futures high. Precious metals jumped Thursday on a weaker dollar and increased safe-haven demand after President Trump expanded tariffs and imposed a 25% tariff on US auto imports. Precious metals also gained after the US 10-year breakeven inflation rate rose to a 1-month high Thursday, boosting demand for precious metals as an inflation hedge. In addition, geopolitical risks in the Middle East are boosting safe-haven demand for precious metals as Israel continues airstrikes across Gaza, ending a two-month ceasefire with Hamas, and as the US continues to launch strikes on Yemen's Houthi rebels.
Higher T-note yields Thursday were bearish for precious metals. Also, hawkish comments from ECB Governing Council member Wunsch weighed on precious metals when he said the ECB should consider holding interest rates steady at its next meeting. In addition, gains in silver are limited as Wednesday's action from President Trump to impose 25% tariffs on US auto imports threatens to spark a trade war that will derail global economic growth and industrial metals demand.
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