The dollar index (DXY00) on Wednesday rose by +0.39%. The dollar Wednesday moved moderately higher and is just below last Friday’s 6-week high. A slump in stocks Wednesday boosted the liquidity demand for the dollar. Also, the hawkish minutes of the Jan 31-Feb 1 FOMC meeting supported the dollar, with policymakers anticipating additional rate hikes.
Wednesday’s Jan 31-Feb 1 FOMC meeting minutes were hawkish for Fed policy and bullish for the dollar. The minutes showed policymakers anticipated further rate hikes for longer to bring inflation down to the Fed's target. "Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time."
The FOMC meeting minutes also showed that some policymakers said an "insufficiently restrictive" policy stance could stall recent progress on moderating inflation pressures, suggesting they may be prepared to raise rates higher than their December forecast of 5.1%.
EUR/USD (^EURUSD) on Wednesday fell by -0.40%. The euro Wednesday dropped to a 1-3/4 month low on strength in the dollar. Also, Wednesday’s comments from ECB Governing Council member de Galhau weighed on the euro when he said that the “markets have overreacted" when placing bets for peak ECB interest rates. However, the euro found support on Wednesday’s +1.0 point increase in the German Feb IFO business confidence index to an 8-month high of 91.1.
ECB Governing Council member de Galhau said, "there's been an excess of volatility on expectations for the terminal rate. In other words, markets have overreacted" when placing bets for peak ECB interest rates.
USD/JPY (^USDJPY) on Wednesday fell by -0.05%. The yen Wednesday posted modest gains after a decline in T-note yield sparked some short covering in the yen. Also, Wednesday’s stronger-than-expected Japan Jan producer price service report was hawkish for BOJ policy and supportive of the yen. In addition, concern about rising wage pressures in Japan may prompt the BOJ to exit its ultra-easy policies after Toyota Motors agreed to give the largest wage hikes in 20 years to its union members today, and Honda Motors said it would boost its wages by +5%, including the biggest increase in base pay in 30 years.
Japan Jan PPI services prices rose +1.6% y/y, slightly stronger than expectations of +1.5% y/y.
April gold (GCJ3) on Wednesday closed down -1.00 (-0.05%), and March silver (SIH23) closed down -0.213 (-0.97%). Precious metals Wednesday closed lower. A stronger dollar Wednesday weighed on metals prices. Also, gold prices were under pressure due to the continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Tuesday. Silver was under pressure on signs of an uneven recovery in China that is bearish for industrial metals demand.
Gold and silver prices extended their losses from their Wednesday afternoon closing levels after the minutes of the Jan 31-Feb 1 FOMC meeting stated that policymakers anticipated further rate hikes for longer. Lower global bond yields Wednesday limited the downside in precious metals prices.
More Forex News from Barchart
- Stocks See Support as T-note Yields Fall Before FOMC Minutes
- Dollar Gains as T-Note Yields Jump and Stocks Slump
- Stocks Fall on Concern about Hawkish Fed
- Dollar Little Changed as T-Note Yields Fall
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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