The dollar index (DXY) experienced a notable decline of 1.84% on Thursday, hitting its lowest point in over six months. This drop was driven chiefly by worries that the intensifying trade conflict between the U.S. and China could disrupt economic growth and potentially trigger stagflation. The U.S. escalated tariffs on Chinese goods to 145%, up from 104%, following China’s retaliatory move to impose 84% tariffs on American products. Additionally, there is a growing confidence issue surrounding the dollar as the U.S. redefines its trade relationships, undermining its status as the world’s primary reserve currency and prompting some foreign investors to divest from dollar-denominated assets. The dollar’s downturn continued after U.S. consumer prices for March increased less than anticipated, a development that is likely to influence Federal Reserve policy discussions.
In the labor market, initial unemployment claims rose by 4,000, reaching 223,000, which was in line with expectations. Meanwhile, continuing claims saw a decline of 43,000, now totaling 1.85 million, indicating a stronger labor market than the anticipated figure of 1.886 million.
The March Consumer Price Index (CPI) indicated a year-over-year increase of 2.4%, shy of the forecasted 2.5%. This marked the smallest rise in six months. When excluding food and energy, the CPI increased by 2.8% year-over-year, again falling short of the expected 3.0%, marking the lowest increase in four years.
Kansas City Fed President Esther George emphasized the Fed’s commitment to controlling inflation while balancing its dual mandate for full employment. Similarly, Dallas Fed President Lorie Logan noted the importance of preventing tariff-related price hikes from contributing to persistent inflation.
Market sentiment suggests that the probability of a 25 basis point rate cut following the FOMC meeting on May 6-7 has slightly increased to 32%, compared to 30% the previous week.
In currency movements, the euro (EUR/USD) surged by 1.98% on Thursday, reaching a nearly two-year high due to the dollar’s significant drop. The euro was further bolstered by President Trump’s decision to halt reciprocal tariffs, which could help prevent a recession in the Eurozone and lessen anticipations of further easing from the European Central Bank (ECB). Expectations are high that the ECB will implement a 25 basis point cut at its upcoming policy meeting on April 17.
The Japanese yen (USD/JPY) also rallied sharply, dropping 1.89% against the dollar and reaching just below its recent six-month high. This surge in the yen was largely attributed to the unexpected increase in Japanese producer prices for March, which rose 0.4% month-over-month and 4.2% year-over-year. As US-China trade tensions escalated, the yen’s status as a safe-haven currency attracted increased demand.
In the realm of precious metals, gold prices closed at a robust increase of 3.19%, settling $98.10 higher. Similarly, silver saw a gain of 1.13%, closing up by $0.344. Precious metals benefited from the dollar’s withdrawal, as well as from a sell-off in stocks that directed investors toward safer asset options. Heightened demand for safe havens has been further spurred by geopolitical risks in the Middle East, notably following the breakdown of the ceasefire between Israel and Hamas, along with threats from the U.S. regarding military action against Yemen’s Houthi rebels. This trend in precious metals was reinforced by heightened fund activity as gold ETF positions climbed to a year-and-a-half high. However, silver price gains faced headwinds due to concerns that escalating trade tensions could negatively impact global economic growth and subsequently diminish demand for industrial metals.
As the markets react to these developments, the landscape of both currencies and commodities remains dynamic, influenced by ongoing economic indicators, geopolitical events, and shifts in market sentiment.
