
The dollar index (DXY00) on Wednesday fell -0.451 (-0.47%). The dollar index dropped to a 1-week low and posted moderate losses. A rally in stocks Wednesday curbed the liquidity demand for the dollar. The dollar fell to its low Wednesday after the U.S. Jan ADP employment report unexpectedly declined, which is dovish for Fed policy.
EUR/USD (^EURUSD) on Wednesday rose +0.0040 (+0.35%). EUR/USD on Wednesday rose to a 1-week high and finished moderately higher. Eurozone inflation concerns pushed the 10-year German bund yield up to a 2-3/4 year high Wednesday of 0.056% and strengthened the euro’s interest rate differentials. Eurozone Jan CPI rose by a record +5.1% y/y (data from 1999), stronger than expectations of +4.4% y/y. Short-covering ahead of Thursday’s ECB meeting also supported gains in EUR/USD.
USD/JPY (^USDJPY) on Wednesday fell -0.31 (-0.27%). USD/JPY fell to a 1-week low Wednesday as dollar weakness supported the yen. Also, lower T-note yields Wednesday are bullish for the yen. Gains in the yen were limited as a surge in Covid infection rates in Japan may prompt the government to impose restrictions that are bearish for the yen after Tokyo reported a record 21,576 new Covid infections Wednesday.
Wednesday’s U.S. economic data was bearish for the dollar. The U.S. Jan ADP employment change unexpectedly fell -301,000, weaker than expectations of a +180,000 increase and the biggest decline in 1-3/4 years.
April gold (GCJ22) on Wednesday closed up +8.80 (+0.49%), and March silver (SIH22) closed up +0.112 (+0.50%). Precious metals Wednesday settled moderately higher. A decline in the dollar index to a 1-week low Wednesday was bullish for metals prices. Gold also garnered support Wednesday as a hedge against inflation after Eurozone Jan CPI rose a record +5.1% y/y, stronger than expectations of +4.4% y/y. Gains in gold were limited as a rally in stocks Wednesday reduced the safe-haven demand for precious metals.
The dollar and gold have continued safe-haven support from the negative impact of the worldwide spread of the omicron Covid variant on the global economic recovery.