Dollar Climbs With T-Note Yields

The dollar index (DXY00) on Thursday rose by +0.50%.   The dollar index Thursday rallied moderately.  A jump in T-note yields Thursday was supportive for the dollar. Also, Thursday’s U.S. economic news that showed an unexpected decline in weekly jobless claims and an upward revision to Q4 unit labor costs was hawkish for Fed policy and bullish for the dollar. 

Thursday’s U.S. economic news was mostly hawkish for Fed policy and bullish for the dollar.  Weekly initial unemployment claims unexpectedly fell -2,000 to 190,000, showing a stronger labor market than expectations of an increase to 195,000.  Also, weekly continuing claims unexpectedly fell -5,000 to 1.655 million, showing a stronger labor market than expectations of an increase to 1.669 million.  In addition, Q4 unit labor costs were revised upward to 3.2% from 1.1%, stronger than expectations of 1.6%.  On the bearish side, Q4 nonfarm productivity was revised lower to 1.7% from 3.0%, weaker than expectations of 2.5%.

Fed comments Thursday were mixed for the dollar.  On the bullish side, Boston Fed President Collins said she favors additional rate hikes to get inflation under control, saying, "I do believe that we will need to do some additional rate increases, and exactly what the right amount is needed to be is dependent on a holistic review of the information that we receive."  Conversely, Atlanta Fed President Bostic said he favors raising interest rates by 25 bp at this month's FOMC meeting, and the Fed could be in a position to pause rate hikes by mid to late summer.

EUR/USD (^EURUSD) on Thursday fell by -0.67%.  The euro Thursday was under pressure from a stronger dollar and from the minutes of the Feb 1-2 ECB meeting that showed policymakers are not yet concerned about overtightening and anticipate a soft landing.  EUR/USD failed to garner support from Thursday’s report on Eurozone inflation that showed Eurozone Feb core CPI unexpectedly accelerated to a record high, which pushed the 10-year German bund yield up to an 11-year high of 2.773%

The Eurozone Jan unemployment rate was unchanged at 6.7% y/y, showing a weaker labor market than expectations of 6.6%.

Eurozone Feb CPI eased slightly to 8.5% y/y from 8.6% y/y in Jan, stronger than expectations of 8.3% y/y.  Also, Feb core CPI unexpectedly accelerated to a record high 5.6% y/y, stronger than expectations of no change at 5.3% y/y. 

ECB President Lagarde said interest-rate increases might need to persist beyond a planned 50 bp rate increase this month.

USD/JPY (^USDJPY) on Thursday rose by +0.43%.  The yen Thursday dropped r a 2-1/2 month low against the dollar after the 10-year T-note yield climbed to a 3-3/4 month high.  The yen was also under pressure on a Bloomberg report that said the BOJ might hold back from making further adjustments to its ultra-easy monetary policy at the March 10 BOJ meeting. 

Thursday’s Japanese economic news was mainly supportive of the yen. The Feb consumer confidence index rose +0.1 to a 6-month high of 31.1, although weaker than expectations of 32.0. Also, Q4 capital spending ex-software rose +6.3% y/y, stronger than expectations of +5.5% y/y.

April gold (GCJ3) on Thursday closed down -4.90 (-0.27%), and May silver (SIK23) closed down -0.194 (-0.92%).  Precious metals Thursday posted moderate losses.  A stronger dollar Thursday undercut metals prices.  Also, higher global bond yields were bearish for metals prices.  However, losses in gold were limited after an unexpected increase in Eurozone Feb core CPI to a record high boosted demand for gold as an inflation hedge. 

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