Dollar Retreats on Turmoil in the U.S. Banking Sector

Rich Asplund -Barchart - 1 hour ago

The dollar index (DXY00) on Friday fell by -0.69% and posted a 2-week low on a plunge in T-note yields. The 10-year T-note yield Friday tumbled to a 3-1/2 week low as turmoil in the U.S. banking sector fueled a selloff in risk assets and safe-haven buying of government debt. The dollar was also under pressure after Friday’s U.S. Feb payroll report showed an unexpected increase in the unemployment rate, which makes it unlikely that the Fed will ramp up the pace of its interest rate hikes.

The Feb unemployment rate unexpectedly rose +0.2 to 3.6% versus expectations of no change at 3.4% as the Feb participation rate climbed to 62.5% from 62.4% in Jan. Also, Feb average hourly earnings rose +0.2% m/m and 4.6% y/y, weaker than expectations of +0.3% m/m and +4.7% y/y. On the stronger side for the labor market, U.S. Feb nonfarm payrolls rose +311,000, stronger than expectations of +225,000.

EUR/USD (^EURUSD) on Friday rose by +0.58% and posted a 2-1/2 week high. Friday’s selloff in the dollar sparked short covering in the euro. EUR/USD also has support on expectations for the ECB to raise interest rates by +50 bp at next Thursday’s policy meeting.

USD/JPY (^USDJPY) on Friday fell by -0.98%. The yen on Friday extended Thursday’s gains up to a 2-1/2 week high. A plunge in T-note yields Friday sparked short covering in the yen. Also, liquidity concerns in the U.S. banking sector have sparked some repatriation demand for the yen by Japanese investors. The yen initially moved lower Friday after the BOJ maintained QE and kept interest rates at a record low following today’s BOJ meeting. Also, comments from BOJ Governor Kuroda initially weighed on the yen when he said, "it's still too early to discuss an exit" from its easy monetary policy.

Japan’s economic news Friday was bearish for the yen. Jan household spending fell -0.3% y/y, weaker than expectations of -0.1% y/y. Also, Feb PPI eased to +8.2% y/y from +9.5% y/y in Jan, weaker than expectations of +8.4% y/y and the smallest pace of increase in 16 months.

The BOJ voted 9-0 to keep its policy balance rate at -0.1% and to maintain its 10-year JGB yield target at about 0%.

April gold (GCJ3) on Thursday closed up +32.60 (+1.78%), and May silver (SIK23) closed up +0.341 (+1.69%). Precious metals Friday rallied sharply, with gold climbing to a 3-1/2 week high. A slump in the dollar Friday to a 2-week low was bullish for metals prices. Also, Friday’s plunge in global bond yields was supportive of metals. In addition, the turmoil in the U.S. banking sector has boosted safe-haven demand for precious metals. A bearish factor for gold is the continued liquidation of long gold positions in ETFs after gold holdings fell to a new 2-3/4 year low Thursday
https://www.barchart.com/story/news/14968034/dollar-retreats-on-turmoil-in-the-us-banking-sector