Dollar Little Changed as T-Note Yields Fall

The dollar index (DXY00) on Friday rose by +0.01%.  The dollar Friday rallied to a 6-week high after hawkish comments from Fed Governor Bowman pushed the 10-year T-note yield to a 3-1/4 month high. Also, the weakness in stocks Friday boosted the liquidity demand for the dollar.  However, the dollar gave up most of its gains after T-note yields turned lower on dovish comments from Richmond Fed President Barkin, who said he "supports 25 bp rate hikes" by the Fed. 

Friday’s U.S. economic news was hawkish for Fed policy and bullish for the dollar after the Jan import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of a decline of -0.3% m/m.

Fed comments Friday were mixed for the dollar.  On the hawkish side, Fed Governor Bowman said, "I don't think were seeing what we need to be seeing, especially with inflation.  So I think we'll have to continue to raise the federal funds rate until we start to see a lot more progress on that."  Conversely, Richmond Fed President Barkin said he "supports 25 bp rate hikes" by the Fed as it "gives us the flexibility to respond" to data as it comes in.

EUR/USD (^EURUSD) on Friday rose by +0.22%.  The euro Friday recovered from a 6-week low and posted moderate gains. Short covering in the euro emerged Friday after the dollar relinquished all of its gains on dovish Fed comments.  EUR/USD also found support on comments from ECB Executive Board member Schnabel who warned that markets risked underestimating inflation. The euro was under early pressure Friday on dovish comments from ECB Governing Council member de Galhau who said ECB interest rate-hike bets have been volatile recently.  His comments knocked the 10-year German bund yield to 2.440% from a 7-week high of 2.568% and weighed on the euro.  

ECB Executive Board member Schnabel warned that markets risked underestimating inflation.  She said the Eurozone economy's reaction to interest-rate increases may prove weaker than prior episodes, and if that transpires, "we may have to act more forcefully."

USD/JPY (^USDJPY) on Friday rose by +0.10%.  The yen Friday tumbled to a 1-3/4 month low against the dollar.  Higher T-note yields early Friday weighed on the yen.  Also, central bank divergence is pressuring the yen, with the Fed, ECB, and BOE raising interest rates while the BOJ maintains QE and record-low interest rates.  However, the yen recovered most of its losses Friday after dovish Fed comments knocked T-note yields lower.

April gold (GCJ3) on Friday closed down -1.60 (-0.09%), and March silver (SIH23) closed up +0.005 (+0.02%).  Precious metals Friday settled mixed, with gold falling to a 7-week low.  Friday’s rally in the dollar index to a 6-week high undercut metals prices.  However, precious metals recovered nearly all of their losses, with silver closing slightly higher after the dollar gave up most of its gains and global bond yields turned lower from multi-week highs.  Gold prices remain under pressure from continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Thursday.

• Central Bank Comments on Tighter Monetary Policy Weighs on Stocks
• Dollar Erases Early Gains as Stocks Stabilize
• Strength in U.S. Producer Prices and Hawkish Fed Speak Weighs on Stocks
• Dollar Rallies on Signs of U.S. Economic Strength