The dollar index (DXY00) on Wednesday fell by -0.37%. The dollar index Wednesday posted moderate losses, weighed down by strength in the yuan and euro. The yuan rose to a 1-week high against the dollar Wednesday after Chinese manufacturing activity expanded at the fastest pace in 10 years. The euro rallied to a 1-week high against the dollar after German consumer prices unexpectedly accelerated last month, which is hawkish for ECB policy. The dollar Wednesday was also under pressure from weaker-than-expected U.S. economic news.
Wednesday’s U.S. economic news was mostly weaker-than-expected and bearish for the dollar. The Feb ISM manufacturing index rose +0.3 to 47.7, weaker than expectations of 48.0. Also, Jan construction spending unexpectedly fell -0.1% m/m, weaker than expectations of an increase of +0.2% m/m.
Hawkish Fed comments Wednesday were supportive of the dollar. Minneapolis Fed President Kashkari said, "we're not seeing much of a sign of our interest rate increases slowing down the service sector of the economy, and that is concerning to me." Also, Atlanta Fed President Bostic said, "I think we will need to raise the federal funds rate to between 5% and 5.25% and leave it there until well into 2024" to ensure that inflation returns to the Fed's 2% target.
EUR/USD (^EURUSD) on Wednesday rose by +0.81% and posted a 1-week high. The euro rallied Wednesday after the German Feb CPI unexpectedly accelerated, which raises expectations for tighter ECB policy. Also, hawkish comments Wednesday from ECB Governing Council member and Bundesbank President Nagel boosted the euro when he said “further significant interest-rate steps might be necessary” after the ECB raises rated by 50 bp this month.
German Feb CPI (EU harmonized) rose +1.0% m/m and +9.3% y/y, stronger than expectations of +0.7% m/m and +9.0% y/y.
German Feb unemployment unexpectedly rose +2,000, showing a weaker labor market than expectations of -10,000.
USD/JPY (^USDJPY) on Wednesday rose by +0.01%. The yen Wednesday gave up overnight gains and was little changed. An increase in the 10-year T-note yield Wednesday to a 3-1/2 month high weighed on the yen. Also, comments from BOJ board member Nakagawa undercut the yen when he said the BOJ “needs to continue with easing” to support the economy.
The Japan Feb Jibun Bank manufacturing PMI was revised upward by +0.3 to 47.7 from the previously reported 47.4.
April gold (GCJ3) on Wednesday closed up +8.70 (+0.47%), and May silver (SIK23) closed up +0.024 (+0.11%). Precious metals Wednesday closed moderately higher. A weaker dollar Wednesday was supportive of metals prices. Also, an unexpected acceleration of consumer prices in Germany boosted demand for gold as an inflation hedge after German Jan CPI rose more than expected. Silver prices also found support on news that manufacturing activity in China expanded at its fastest pace in ten years, a supportive factor for industrial metals demand. However, higher global bond yields Wednesday limited gains in precious metals. Also, precious metals were under pressure on comments Wednesday from Minneapolis Fed President Kashkari and Atlanta Fed President Bostic, who said they favor tighter monetary policy.
More Forex News from Barchart
- Stocks Mixed as Global Bond Yields Jump
- Dollar Recovers Early Losses on Month-End Buying
- Stocks Mixed on Weak U.S. Economic News and Higher Global Bond Yields
- Dollar Slides Amid Lower Bond Yields and Stronger Stocks
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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