The dollar index (DXY00) is up by +0.26%. The dollar is moving higher today and found support on better-than-expected US economic reports on Dec capital goods new orders, Dec housing starts and building permits, and Jan manufacturing production. Also, higher T-note yields today have strengthened the dollar’s interest rate differentials. Gains in the dollar are limited as stocks rally, which reduces liquidity demand for the dollar.
US MBA mortgage applications rose +2.8% in the week ended February 13, with the purchase mortgage sub-index down -2.7% and the refinancing mortgage sub-index up +7.1%. The average 30-year fixed rate mortgage fell -4 bp to 6.17% from 6.21% in the prior week.
US Dec capital goods new orders nondefense ex-aircraft and parts (a proxy for capital spending) rose +0.6% m/m, stronger than expectations of +0.3% m/m.
US Dec housing starts rose +6.2% m/m to a 5-month high of 1.404 million, stronger than expectations of 1.304 million. Dec building permits (a proxy for future construction) rose +4.2% m/m to a 9-month high of 1.448 million, stronger than expectations of 1.400 million.
US Jan manufacturing production rose +0.6% m/m, stronger than expectations of +0.4% m/m and the biggest increase in 11 months.
Swaps markets are discounting the odds at 6% 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.
EUR/USD (^EURUSD) today is down by -0.32%. The dollar’s strength today is weighing on the euro. Losses in the euro accelerated today after the Financial Times reported that ECB President Christine Lagarde will step down from the central bank before her term expires in October 2027.
The German Feb ZEW expectations of economic growth survey unexpectedly fell -1.3 to 58.3, weaker than expectations of an increase to 65.2.
Swaps are discounting a 3% 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 +0.70%. The yen is sliding today after the Nikkei Stock Index rose by more than +1%, curbing safe-haven demand for the yen. Also, today’s stronger dollar and higher T-note yields are undercutting the yen.
Divergent central bank policies are supportive of the yen, with the BOJ seen raising interest rates in the near term, while the Fed and ECB keep their rates steady or cut them.
Japanese trade news was mixed for the yen. Jan exports rose +16.8% y/y, stronger than expectations of +13.0% y/y and the most in three years. Jan imports unexpectedly fell -2.5% y/y versus expectations of +3.5% y/y and the biggest decline in five months.
The markets are discounting a +12% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) today is up +112.30 (+2.29%), and March COMEX silver (SIH26) is up +4.345 (+5.91%).
Gold and silver prices are surging today, recovering most of Tuesday’s sharp losses. Safe-haven demand for precious metals is supporting prices amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, 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.
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.
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.
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 on February 2.
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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