The dollar index (DXY00) rose to a 1.5-week high on Thursday and finished up by +0.23%. Thursday’s stock selloff boosted liquidity demand for the dollar. Also, hawkish comments from Fed Governor Lisa Cook supported the dollar when she said she now sees “risks as tilted toward higher inflation.”
Gains in the dollar were limited on Thursday amid signs of weakness in the US labor market. Challenger’s January job cuts posted their biggest decline for a January since 2009, weekly jobless claims rose more than expected to an 8-week high, and the Dec JOLTS job openings unexpectedly fell to a 5.25-year low, dovish factors for Fed policy.
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Challenger Jan job cuts rose +117.8% y/y to 108,435, the largest amount of job cuts for a January since 2009.
US weekly initial unemployment claims rose +22,000 to an 8-week high of 231,000, showing a weaker labor market than expectations of 212,000.
The US Dec JOLTS job openings unexpectedly fell -386,000 to a 5.25-year low of 6.542 million versus expectations of an increase to 7.250 million.
The dollar sank to a 4-year low last Tuesday when President Trump said he’s comfortable with the recent weakness in the dollar. Also, the dollar remains under pressure as foreign investors pull capital from the US amid a growing budget deficit, fiscal profligacy, and widening political polarization.
Swaps markets are discounting the odds at 23% 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) on Thursday fell by -0.14%. The euro gave up an early advance on Thursday and moved lower due to a stronger dollar. The euro initially moved slightly higher on Thursday after the ECB kept interest rates unchanged and said the Eurozone economy “remains resilient.” Thursday’s Eurozone economic news was mixed for the euro after Eurozone Dec retail sales fell more than expected, but German Dec factory orders unexpectedly rose.
Eurozone Dec retail sales fell -0.8% m/m, weaker than expectations of -0.4% m/m and the biggest decline in 2.25 years.
German Dec factory orders unexpectedly rose +7.8% m/m, stronger than expectations of -2.2% m/m decline and the largest increase in two years.
As expected, the ECB kept the deposit facility rate unchanged at 2.00% and said, “The economy remains resilient in a challenging global environment. At the same time, the outlook is still uncertain, owing particularly to ongoing global trade policy uncertainty and geopolitical tensions.”
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) on Thursday rose by +0.04%. The yen fell to a 1.5-week low against the dollar on Thursday and remains under pressure ahead of an expected win by Prime Minister Takaichi’s Liberal Democratic Party in Sunday’s election, which could embolden Ms. Takaichi’s budget stimulus plans and raise the risks of larger deficits. The yen recovered most of its losses after weak US labor news knocked T-note yields lower, a bullish factor for the yen.
The markets are discounting a +28% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) on Thursday closed down -61.30 (-1.24%), and March COMEX silver (SIH26) closed down -7.682 (-9.10%).
Gold and silver prices settled sharply lower on Thursday, weighed down by a stronger dollar. Hawkish comments from Fed Governor Lisa Cook also undercut precious metals, as she said she supported last week’s Fed decision to hold interest rates steady because she now sees “risks as tilted toward higher inflation.” In addition, Thursday’s actions by the ECB and BOE to keep interest rates steady were negative for precious metals. Finally, the recent surge in volatility in precious metals has prompted exchanges to boost trading margin limits, forcing capitulation and liquidation of losing long positions.
Precious metals have found support from safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela. Also, precious metals are surging as the dollar debasement trade gathers steam. Last Tuesday, President Trump said that he’s comfortable with the recent weakness in the dollar, which sparked demand for metals as a store of value. In addition, 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.
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.
Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China’s PBOC reserves rose by +30,000 ounces to 74.15 million troy ounces in December, the fourteenth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported that global central banks purchased 220 MT of gold in Q3, up +28% from Q2.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high last Wednesday. 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 Monday.
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.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
