The dollar index (DXY00) on Monday fell by -0.64%. Monday’s stock rebound has diminished liquidity demand for the dollar. The dollar added to its losses on Monday after T-note yields fell, weakening the dollar’s interest rate differentials.
Monday’s US economic news was mixed for the dollar after the Feb Empire manufacturing index fell more than expected, but Feb manufacturing production and the Mar NAHB housing market index rose more than expected.
The US Feb Empire manufacturing survey of general business conditions index fell -7.3 to -0.2, weaker than expectations of 3.9.
US Feb manufacturing production rose +0.2% m/m, stronger than expectations of +0.1% m/m, and Jan manufacturing production was revised upward to +0.8% m/m from the previously reported +0.6% m/m.
The US Mar NAHB housing market index rose +1 to 38, stronger than expectations of 37.
Swaps markets are discounting the odds at 1% for a -25 bp rate cut at the Tue/Wed FOMC meeting.
The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) on Monday rose by +0.91%. The dollar’s weakness on Monday supported the euro. The euro added to its gains on Monday when crude oil prices tumbled by more than -5%, which is bullish for the euro, as lower crude prices are supportive of the Eurozone economy, which relies on energy imports.
Swaps are discounting a 3% chance of a +25 bp rate hike by the ECB at Thursday’s policy meeting.
USD/JPY (^USDJPY) on Monday fell by -0.47%. The yen recovered from a 1.75-year low against the dollar on Monday and moved higher after crude oil prices fell by more than -5%, as weakness in crude oil is supportive of Japan’s economy, which relies on energy imports. Also, lower T-note yields on Monday were bullish for the yen.
Monday’s comments from Japanese finance minister Satsuki Katayama sparked short covering in the yen, as she signaled Japan may be close to intervening in the forex market to support the yen, saying authorities are prepared to respond to movements in the currency market “with bold steps if necessary.”
The markets are discounting a +6% chance of a BOJ rate hike at the next meeting on Thursday.
April COMEX gold (GCJ26) on Monday closed down -59.50 (-1.18%), and May COMEX silver (SIK26) closed down -0.661 (-0.81%).
Gold and silver prices fell to 3-week lows on Monday and settled sharply lower. Monday’s sharp rebound in stocks, driven by hopes that the Strait of Hormuz will soon reopen, has curbed safe-haven demand for precious metals. Also, the recent surge in WTI crude oil to a 3.75-year high may boost inflationary pressures and reduce expectations of a Fed rate cut, a negative factor for precious metals.
Losses in silver prices were limited on Monday due to stronger-than-expected global economic news on US Feb manufacturing production and Chinese Feb industrial production, which are supportive of industrial metals demand.
On the positive side for precious metals on Monday were a weaker dollar and lower T-note yields. Also, precious metals still have underlying support from safe-haven demand amid the war in Iran, which shows no signs of de-escalation. In addition, uncertainty over US tariffs, US political turmoil, large US deficits, and government policy uncertainty are boosting demand for precious metals as a store of value.
Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 2-month low last Friday after climbing to a 3.5-year high on February 27. Also, long holdings in silver ETFs fell to a 4-month low last Friday after rising to a 3.5-year high on December 23.
Strong central bank demand for gold is also supportive of gold 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.
China Feb industrial production rose +6.3% year-to-date y/y, stronger than expectations of +5.3%.
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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