Dollar Follows T-Note Yields Lower

The dollar index (DXY00) on Friday fell by -0.51%.   The dollar index Friday posted moderate losses on lower T-note yields. Also, stronger-than-expected Chinese economic news Friday bolstered demand for risk assets and weighed on the dollar.  In addition, a rally in stocks Friday reduced the liquidity demand for the dollar.

Friday’s U.S. economic news was hawkish for Fed policy and bullish for the dollar after the Feb ISM services index fell -0.1 to 55.1, stronger than expectations of 54.5.

Hawkish Fed comments Friday from Boston Fed President Collins were supportive of the dollar when she said, "I anticipate that reducing inflation back to target will require additional federal funds rate increases to bring interest rates to a sufficiently restrictive level, and then holding them there for some perhaps extended time."

EUR/USD (^EURUSD) on Friday rose by +0.36%.  The euro Friday rallied moderately on hawkish comments from ECB Governing Council members Muller and Vasle, who said they expect “additional increases” in interest rates by the ECB after this month’s expected 50 bp rate hike. 

Friday’s Eurozone economic news was mixed for the euro.  On the positive side, German Jan exports rose +2.1% m/m, stronger than expectations of +1.5% m/m and the biggest increase in 5 months.  Conversely, the Feb S&P composite PMI was revised downward by -0.3 to 52.0 from the initially reported 52.3.  Also, the Eurozone Jan PPI eased to +15.0% y/y from +24.8% y/y in Dec, weaker than expectations of +17.8% y/y and the slowest pace of increase in 17 months.

Hawkish ECB comments Friday were supportive of EUR/USD. ECB Governing Council member Muller said, "it's quite possible that interest rates will need to stay high for quite some time so that we can be sure that inflation will come back to, and remain at, close to 2%."  Also, ECB Governing Council member Vasle said he expects an interest-rate hike at this month's ECB meeting to be followed by "additional increases."

USD/JPY (^USDJPY) on Friday fell by -0.69%.  The yen Friday moved moderately higher on a decline in T-note yields.  Also, better-than-expected Japanese economic news Friday was bullish for the yen.  In addition, signs of faster inflation are hawkish for BOJ policy and supportive of the yen after Tokyo Feb CPI rose more than expected. 

Friday’s Japanese economic news was better-than-expected and bullish for the yen.  The Jan jobless rate unexpectedly fell -0.1 to a 2-3/4 year low of 2.4%, showing a stronger labor market than expectations of no change at 2.5%.  Also, the Feb Jibun Bank services PMI was revised upward by +0.4 to 54.0 from the initially reported 53.6, the fastest pace of expansion in 8 months.  In addition, the Feb Tokyo CPI ex-fresh food and energy rose +3.2% y/y, stronger than expectations of +3.1% y/y and the most in 32 years.

April gold (GCJ3) on Friday closed up +14.10 (+0.77%), and May silver (SIK23) closed up +0.337 (+1.61%).  Precious metals Friday closed moderately higher, with gold climbing to a 2-week high and silver posting a 1-week high.  A weaker dollar Friday was bullish for metals prices.  Also, lower global bond yields Friday supported gains in metals.  Gold garnered support on increased demand as an inflation hedge after Japan’s Feb Tokyo CPI ex-fresh food and energy rose more than expected by the most in 32 years. Silver prices found support on signs of stronger Chinese industrial metals demand after the China Feb Caixin services PMI rose more than expected at the fastest pace of expansion in 6 months. 

• Stocks Move Higher as Bond Yields Fall on Interest Rate Optimism
• Dollar Climbs With T-Note Yields
• Stocks Climb Higher Despite Rising Bond Yields
• Dollar Slides on Strength in the Yuan and Euro