US dollar deepens losses to four-month trough before private sector employment data
The US dollar fell in European trade on Wednesday against a basket of major rivals, extending losses for the third straight session and plumbing four-month lows amid concerns about the impact of the global trade wars on US growth.
Now investors await important US data later today on private sector employment to gather more clues on the path ahead for Fed monetary policies.
The Index
The dollar index fell 0.65% today to 104.85, the lowest since November 8, with a session-high at 105.77.
On Tuesday, the index lost 1%, marking the heftiest loss since January 20 amid a heavy selloff.
Global Trade Wars
US President Donald Trump implemented 25% tariffs on Canada and Mexico, and doubled the additional tariffs on Chinese imports to 20%.
In response, China imposed 10-15% tariffs on some US imports starting March 10, while China imposed 25% imports on a variety of US products, with Mexico expected to follow soon.
Trump once again threatened to impose reciprocal tariffs on many of the world’s countries dependent on their tariffs on US products, thus raising concerns about inflation and growth in the US.
US Rates
New York Fed President John Williams said the US tariffs will likely push inflation higher, but he believes current interest rate policies are suitable and don’t require changes.
According to the Fedwatch tool, the odds of a 0.25% Fed interest rate cut in March stood at just 7%.
Now investors await important US data on private sector employment and the official payrolls report later this week to gather more clues.
The US private sector is expected to have added 141 thousand new jobs in February, down from 183 thousand in January.
Gold prices decline before crucial US data
Gold prices fell in European trade on Wednesday for the first time in three days, moving away from a week high under pressure from higher US 10-year treasury yields.
Despite the decline, the precious metal is still trading below $2900 an ounce ahead of important US labor data, which would provide clues on the odds of a Fed rate cut in the next quarter.
Prices
Gold prices fell 0.55% today to $2902 an ounce, with a session-high at $2922.
On Tuesday, gold rose 0.85%, the second profit in a row, hitting a week high at $2927 as the dollar dropped.
US Yields
US 10-year treasury yields rose 0.9% on Wednesday away from five-month lows at 4.108%, in turn underpinning the dollar.
It comes as investors assess the impact of US tariffs on Canada, Mexico, and China in regards to inflation in the US.
US Rates
New York Fed President John Williams said the US tariffs will likely push inflation higher, but he believes current interest rate policies are suitable and don’t require changes.
According to the Fedwatch tool, the odds of a 0.25% Fed interest rate cut in March stood at just 7%.
Now investors await important US data on private sector employment and the official payrolls report later this week to gather more clues.
The SPDR
Gold holdings at the SPDR Gold Trust rose 0.87 tons yesterday to a total of 901.8 tons.
Euro expands gains to four-month high as German parties compromise
The euro rose in European trade on Wednesday against a basket of major rivals, expanding gains for the third straight session against the dollar and hitting a four-month high as German political parties agreed on a massive spending plan to support the eurozone’s biggest economy.
Later today, the European Central Bank will convene to discuss policies, and will likely cut interest rates for the fifth straight meeting, with markets now waiting for more signals on future policy moves.
The Price
The EUR/USD pair rose 0.15% to $1.0639, the highest since November 13, with a session-low at $1.0602.
The EUR/USD rose 1.35% on Tuesday, marking the biggest profit since January 20 after positive political developments in Germany.
German Spending Plan
Germany’s coalition parties agreed to form an infrastructure fund with a budget of 500 billion euros, while changing borrowing rules to bolster military spending and economic growth.
Such massive plans only serve to underpin the euro as the debt limiters are lifted and growth accelerated.
ECB
The European Central Bank is convening today and tomorrow to decide on monetary policies, with most analysts expecting a 25 basis points cut to 2.65%.
Now markets await more clues on the future path of monetary policies by the ECB this year.
Interest Rate Gap
The current eurozone-US interest rate gap stands at 160 basis points in favor of the US, and will likely expand to 185 basis points later this week, undermining the euro.
Yen backs off five-month high on cautious BOJ tone
The Japanese yen dropped in Asian trade on Wednesday on track for the second straight loss against the dollar, moving away from five-month highs on profit-taking.
Recent bullish remarks from some Bank of Japan officials hurt the odds of a Japanese rate hike in March as markets now await more data.
The yen is also pressured by higher US 10-year treasury yields before a series of important US labor data.
The Price
The USD/JPY pair rose 0.25% today to 150.18 yen per dollar, with a session-low at 149.57.
The yen lost 0.2% on Tuesday against the dollar on profit-taking away from a five-month high at 148.09.
Cautious Remarks
Bank of Japan Governor Kazuo Ueda said on Wednesday that monetary policy divergence with other countries could increase instability especially at the forex market. He cautioned that mounting geopolitical tensions between countries could lead to a sudden change in capital inflows across borders.
BOJ Deputy Governor Shinichi Uchida said that the BOJ monetary policy doesn’t aim at manipulating the forex market or reducing the yen’s value, and he added that the BOJ will take US tariffs into account when reviewing economic outlook.
Uchida said there are no plans for a rate hike at each monetary policy meeting, and no preconceived view on the pace of future rate hikes, as such moves will depend on the economy and inflation.
Japanese Rates
Following the remarks, the odds of a Bank of Japan interest rate hike in March fell from 85% to 65%.
US Yields
US 10-year treasury yields rose 0.9% on Wednesday away from five-month lows at 4.108%, in turn underpinning the dollar.
It comes as investors assess the impact of US tariffs on Canada, Mexico, and China in regards to inflation in the US.
According to the Fedwatch tool, the odds of a 0.25% Fed interest rate cut in March stood at just 7%.