The dollar index (DXY00) today is up +0.04%. The weakness in stocks today has boosted some liquidity demand for the dollar. However, gains in the dollar are limited after US January consumer prices rose less than expected, boosting speculation that the Fed will be able to resume cutting interest rates.
US Jan CPI rose +2.4% y/y, weaker than expectations of +2.5% y/y and the smallest pace of increase in 7 months. Jan core CPI rose +2.5% y/y, right on expectations and the smallest pace of increase in 4.75 years.
The dollar sank to a 4-year low late last month when President Trump said he's comfortable with the recent weakness in the dollar. Also, the dollar remains under pressure as foreign investors pull capital from the US amid a growing budget deficit, fiscal profligacy, and widening political polarization.Â
Swaps markets are discounting the odds at 10% for a -25 bp rate cut at the next policy meeting on March 17-18.
The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026.Â
EUR/USD (^EURUSD) today is down by -0.06%.  The euro is slightly lower today after the 10-year German bund yield fell to a 2.25-month low of 2.737%, which has weakened the euro's interest rate differentials and is weighing on the euro. Losses in the euro are limited after the German Jan wholesale price index posted its largest increase in a year, a hawkish factor for ECB policy.Â
The German Jan wholesale price index rose +0.9% m/m, the largest increase in a year.
Swaps are discounting a 4% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) today is up by +0.18%. The yen is under pressure today as it consolidates recent gains. The yen rallied to a 2-week high this week when Japanese Prime Minister Takaichi eased fiscal concerns by saying any tax cut on food sales would not require an increase in debt issuance.Â
However, losses in the yen are limited amid hawkish comments today from BOJ Board member Naoki Tamura, who said that conditions may be right for a BOJ rate hike this spring. Also, lower T-note yields today are supportive of the yen.
Comments from BOJ Board member Naoki Tamura suggest that conditions may be right for a BOJ rate hike this spring when he said, "It is quite possible that, as early as this spring, the price stability target of 2% can be judged to have been achieved if it's confirmed with a high certainty that wage growth this year will be in line with the target for the third consecutive year."
The markets are discounting a +20% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) today is up +69.60 (+1.41%), and March COMEX silver (SIH26) is up +1.813 (+2.40%).Â
Gold and silver prices are moving higher today after the weaker-than-expected US Jan CPI report bolstered speculation that the Fed could resume its interest rate-cutting campaign, a bullish factor for precious metals. Also, lower global bond yields today are bullish for precious metals.
Precious metals are supported by safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, precious metals are surging as the dollar debasement trade gathers steam. Late last month, President Trump said that he's comfortable with the recent weakness in the dollar, which sparked demand for metals as a store of value. In addition, US political uncertainty, large US deficits, and uncertainty regarding government policies are prompting investors to cut holdings of dollar assets and shift into precious metals.Â
Strong central bank demand for gold is also supportive of prices, following the recent news that bullion held in China's PBOC reserves rose by +40,000 ounces to 74.19 million troy ounces in January, the fifteenth consecutive month the PBOC has boosted its gold reserves.Â
Finally, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC's December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.
Gold and silver plunged from record highs on January 30 when President Trump announced he had nominated Keven Warsh as the new Fed Chair, which fueled massive liquidation of long positions in precious metals. Mr. Warsh is one of the more hawkish candidates for Fed Chair and is seen as less supportive of deep interest rate cuts. Also, recent volatility in precious metals prices has prompted trading exchanges worldwide to raise margin requirements for gold and silver, leading to the liquidation of long positions.Â
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on January 28. Also, long holdings in silver ETFs rose to a 3.5-year high on December 23, though liquidation has since knocked them down to a 2.5-month low last Monday.
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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