The dollar index (DXY00) on Friday rose by +0.42%. The dollar moved higher on Friday as weakness in stocks boosted some liquidity demand for the dollar. Also, the ongoing war in Iran has boosted demand for the dollar as a safe haven. In addition, higher T-note yields on Friday strengthened the dollar’s interest rate differentials. The dollar also has carryover support from Wednesday, when Fed Chair Powell said there will be no Fed rate cut unless there is progress on inflation.
Swaps markets are discounting the odds at 12% for a +25 bp rate hike at the April 28-29 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 Friday fell by -0.31%. The euro was under pressure on Friday from a stronger dollar. Also, Friday’s news that showed German Feb producer prices posted their biggest decline in 1.75 years is dovish for ECB policy and negative for the euro. The euro remained lower after crude oil prices rose more than +2%, a negative factor for the Eurozone economy, as Europe imports most of its energy needs.
German Feb PPI fell -3.3% y/y, weaker than expectations of -2.7% y/y and the biggest decline in 1.75 years.
Hawkish comments on Friday from ECB Governing Council member and Bundesbank President Joachim Nagel were supportive of the euro when he said the ECB may need to consider raising interest rates as soon as next month if price pressures build further due to the Iran war.
Swaps are discounting a 80% chance of a +25 bp rate hike by the ECB at the April 30 policy meeting.
USD/JPY (^USDJPY) on Friday rose by +1.02%. The yen fell sharply on Friday amid strength in the dollar and higher T-note yields. The yen added to its losses on Friday after crude oil prices surged by more than +2%, a bearish factor for Japan’s economy, which imports 90% of its energy needs. Trading volume and activity in the yen were below normal on Friday, as markets in Japan were closed for the Vernal Equinox Day holiday.
The markets are discounting a +61% chance of a 25 bp BOJ rate hike at the next meeting on April 28.
April COMEX gold (GCJ26) on Friday closed down -30.80 (-0.67%), and May COMEX silver (SIK26) closed down -1.551 (-2.18%).
