The dollar index (DXY00) on Friday gave up an early advance and fell by -0.05%. A rally in stocks Friday curbed liquidity demand for the dollar. The dollar was also undercut by Friday’s news that U.S. Dec existing home sales fell to a 12-year low. In addition, dovish comments from Fed Governor Waller and Philadelphia Fed President Harker weighed on the dollar when they said they favored the Fed raising interest rates by only +25 bp going forward.
Friday’s U.S. economic news was bearish for the dollar after Dec existing home sales fell -1.5% m/m to a 12-year low of 4.02 million, although that was a smaller decline than expectations of 3.95 million.
Fed comments Friday were dovish for Fed policy and bearish for the dollar. Fed Governor Waller said he "currently favors a +25 bp interest rate increase at the FOMC's next meeting at the end of this month." Also, Philadelphia Fed President Harker said he favors raising interest rates by +25 bp going forward to get the funds rate above 5%, but how high rates will need to go will be shaped by inflation.
EUR/USD (^EURUSD) on Friday rose by +0.23%. The euro moved higher after Friday’s economic news showed German Dec PPI rose more than expected, which is hawkish for ECB policy. Also, Friday’s comments from ECB President Lagarde gave the euro a boost when she said the ECB should “stay the course” on raising interest rates, pushing back against a report earlier this week that said the ECB is considering a slower pace of interest rate hikes.
German Dec PPI eased to 21.6% y/y from 28.2% y/y in Nov, stronger than expectations of +20.7% y/y.
ECB President Lagarde said, "stay on course is her mantra for monetary-policy purposes," even as the spike in prices appears to have peaked. Her comments suggest she is against slowing the pace of ECB interest rate hikes.
USD/JPY (^USDJPY) on Friday rose by +0.86%. The yen Friday retreated on comments from BOJ Governor Kuroda, who pushed back on speculation the BOJ would soon end its ultra-easy monetary policy when he said the BOJ "will continue" its expansionary policy. The yen tumbled Friday even after Japanese economic news showed inflation pressures accelerating.
Japan's Dec national CPI ex-fresh food rose +4.0% y/y, right on expectations and the largest increase in 41 years. Also, the Japan Dec national CPI ex-fresh food and energy rose +3.0% y/y, the largest increase in 31 years but below expectations of +3.1% y/y.
February gold (GCG3) on Friday closed up +4.30 (+0.22%), and March silver (SIH23) closed up +0.065 (+0.27%). Precious metals Friday posted modest gains, with gold climbing to a 9-month high. A weaker dollar Friday was bullish for metals prices. Also, dovish comments Friday Fed Governor Waller and Philadelphia Fed President Harker boosted demand for gold as a store of value when they said they favored the Fed raising rates by only +25 bp at future FOMC meetings. Higher global bond yields Friday were bearish for metals, along with a rally in stocks that curbed the safe-haven demand for precious metals.
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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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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