On Friday, the dollar index registered a notable increase of 1.06%. After starting the day with some losses, the dollar managed to recover or rebound moderately, pulling away from a six-month low that it hit on Thursday. A significant factor in this recovery was the stronger-than-expected rise in March US payrolls, which instigated some short covering in the dollar—a behavior that reflects traders closing their positions to minimize losses. This positive labor market indicator is considered a hawkish sign, likely influencing the Federal Reserve’s monetary policy going forward.
The dollar initially saw a decrease on Friday when China revealed a substantial 34% retaliatory tariff on US imports, heightening anxieties that a trade war could hinder economic growth and compel the Federal Reserve to cut interest rates. Adding to this context, a drop in the ten-year Treasury note yield to 3.856%, the lowest in six months, tested the dollar’s appeal due to lower interest rate differentials. Furthermore, there are fears that if President Trump’s tariffs continue to provoke such responses, foreign investors may reconsider their US asset holdings.
In March, US non-farm payrolls saw a jump of 228,000 jobs added, significantly exceeding the anticipated increase of 140,000. However, the unemployment rate saw an unexpected increase to 4.2%, up from the previous 4.1%, signaling a mixed message about labor market health. Meanwhile, average hourly earnings rose 3.8% year-on-year, marking the slowest growth in eight months, falling short of expectations of a 4.0% increase.
Federal Reserve Chair Jerome Powell addressed concerns regarding the economic repercussions of new tariffs, suggesting that their impact may surpass initial projections, potentially leading to slower growth and increased inflation. Powell emphasized that the Federal Reserve is in no rush to modify its current monetary policy.
The forex market reacted to these developments with the euro experiencing a decline of 1.00%. After reaching a six-month peak the previous day, the euro faced pressure, particularly following disappointing factory orders data from Germany. February factory orders in Germany were unchanged month-over-month, contrary to expectations of a 3.4% increase. The weak data for the eurozone combined with the robust payroll numbers and Powell’s remarks caused the euro to lose strength, further heightened by fears that US trade policies could ignite a recession within the Eurozone.
As for the Japanese yen, it depreciated by 0.66% against the dollar after initially benefiting from the global trade concern. The yen’s strength diminished due to long liquidation, caused by the dollar’s rally linked to positive payroll figures and Powell’s comments. Comments from the Bank of Japan (BOJ) Governor Haruhiko Kuroda asserted that US tariffs have added considerable uncertainty to Japan’s economic outlook.
In terms of economic data, Japanese household spending fell by 0.5% year-over-year and was better than the projected drop of 0.8%. Kuroda noted that the BOJ would likely maintain its current monetary policy stance in the near term.
Turning to precious metals, June gold futures closed the week down by $86.30, or 2.76%, while May silver saw a more dramatic fall of $2.740, or 8.57%. Both gold and silver prices declined significantly due to China’s announcement of heavy tariffs on US goods, subsequently leading to broader stock losses and triggering a sell-off in long positions of these precious metals. Moreover, a decrease in inflation expectations, noted by the drop in the ten-year breakeven inflation rate, added downward pressure on gold prices as it reduced demand for gold as an inflation hedge. With concerns about a potential trade war looming and geopolitical tensions rising, particularly in the Middle East, demand for precious metals as a safe-haven asset helps to counterbalance some of these economic worries.
Thus, while the economic scene at the close of the week appears uncertain, the movements across currency and commodity markets encapsulate the complex interplay of fiscal policy, global trade relations, and investor sentiment.
