Dollar Gains on Hawkish Fed and Higher T-note Yields

The dollar index (DXY00) on Thursday rose by +0.09%, supported by higher T-note yields.  Also, hawkish comments from Richmond Fed President Barkin Strength boosted the dollar when he said the Fed is in no hurry to lower interest rates.  In addition, Thursday’s weekly U.S. jobless claims report showed that claims fell more than expected, a sign of strength in the labor market and a hawkish factor for Fed policy. 

U.S. weekly initial unemployment claims fell -9,000 to 218,000, showing a stronger labor market than expectations of 220,000. Also, weekly continuing claims fell -23,000 to 1,871 million, showing a stronger labor market than expectations of 1.875 million.

Comments on Thursday from Richmond Fed President Barkin were slightly hawkish and supportive for the dollar when he said the Fed doesn't have to be in a hurry to cut interest rates and he would like to see disinflation for a few more months before cutting rates.

The markets are discounting the chances for a -25 bp rate cut at 21% for the March 19-20 FOMC meeting and at 74% for the following meeting on April 30-May 1.

EUR/USD (^EURUSD) on Thursday rose by +0.05%.  The euro on Thursday shook off early losses and moved slightly higher on hawkish ECB comments.  ECB Governing Council member Wunsch and ECB Chief Economist Lane said they favor waiting for more data before deciding to cut interest rates.  A stronger dollar Thursday limited gains in the euro.

ECB Chief Economist Lane said the ECB requires more assurance that inflation is returning to its target before policymakers are able to lower interest rates.

ECB Governing Council member Wunsch said he favors waiting for more data before deciding to cut interest rates as wage growth in the Eurozone is running at a level that's not compatible with the ECB's 2% inflation target.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 11% for its next meeting on March 7 and 57% for the following meeting on April 11.

USD/JPY (^USDJPY) on Thursday rose by +0.80%.  The yen on Thursday tumbled to a 2-1/4 month low against the dollar on dovish comments from BOJ Deputy Governor Uchida, who said it’s hard to see the BOJ rapidly raising interest rates even after negative interest rates have ended.  The yen extended its losses Thursday on rising T-note yields. 

The Japan Jan eco watchers outlook survey rose +2.1 to a 6-month high of 52.5, stronger than expectations of 49.3.

BOJ Deputy Governor Uchida said, "Even if the BOJ were to terminate the negative interest rate policy, it is hard to imagine a path in which it would then keep raising interest rates rapidly."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 21% for its next meeting on March 19 and 80% for the following meeting on April 26.

April gold (GCJ4) Thursday closed -3.80 (-0.19%), and Mar silver (SIH24) closed +0.276 (+1.23%).  Precious metals on Thursday settled mixed.  A stronger dollar Thursday was bearish for metals.  Also, hawkish central bank comments Thursday weighed on precious metals after Richmond Fed President Barkin said the Fed doesn't have to be in a hurry to cut interest rates, and ECB Governing Council member Wunsch said he favors waiting for more data before deciding to cut interest rates. Gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Wednesday.  Silver rose Thursday after weekly U.S. jobless claims fell more than expected, a sign of strength in the economy that supports industrial metals demand. 

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