The dollar index (DXY00) on Wednesday rose by +0.32% on support from the +5 bp rise in the 10-year T-note yield, which supported the dollar's interest rate differentials. Also, Wednesday's +4.6% rally in WTI crude oil prices was hawkish for Fed policy and supportive of the dollar.
Wednesday's US CPI report was in line with market expectations and neutral for the dollar. The Feb CPI rose +0.3% m/m and +2.4% y/y, while the Feb core CPI rose +0.2% m/m and +2.5% y/y. The headline CPI report of +2.4% y/y was just 0.1 point above the 5-year low posted in April 2025, while today's core CPI of +2.5% y/y matched the 5-year low posted in the two previous months. Even though the CPI figures are at or near 5-year lows, they are still above the Fed's target of +2%. Moreover, inflation pressures will worsen in the coming months due to the recent spike in oil and fuel prices caused by the war in Iran.
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WTI oil prices rose by +4.6% on Wednesday as volatility in the oil market continued. WTI oil prices spiked up to a 3.75-year high of $119.48 on Monday after Israel bombed 30 fuel depots in Iran, but have since fallen back to the $87 per barrel area after President Trump claimed the Iran war would be over "very soon." In addition, IEA members on Wednesday agreed on a huge 400 million-barrel release of strategic oil reserves by the G-7 nations, much larger than the 182 million-barrel release in 2022 following Russia's invasion of Ukraine. The release is designed to replace the oil lost due to the Strait of Hormuz shutdown and the subsequent production cuts by Persian Gulf oil producers, although it will take some time for the oil stockpiles to reach the market.
Swaps markets are discounting the odds at 0% for a -25 bp rate cut at the next FOMC policy meeting on March 17-18.
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) fell -0.35% on dollar strength. Also, the euro was undercut by Wednesday's rally in WTI crude oil, which was negative for the Eurozone economy.
Swaps are discounting a 4% chance of a +25 bp rate hike by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) rose +0.57% on dollar strength. The yen also faced downward pressure from Wednesday's higher oil prices, which were negative for Japan's economy since Japan is heavily dependent on imported energy.
The markets are discounting a +5% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) on Wednesday closed down -63.0 (-1.20%), and May COMEX silver (SIK26) closed down -4.057 (-4.53%).
Precious metals prices on Wednesday fell back, reversing some of Tuesday's sharp rallies of +2.71% in gold and +6.00% in silver. Precious metals prices were undercut by a rise in US T-note yields and the dollar.
However, precious metals have underlying support from safe-haven demand as the war in Iran drags on. Missiles hit three vessels on Wednesday in the Strait of Hormuz and the Persian Gulf, and new missile volleys hit Israel.
Wednesday's US CPI report was in line with market expectations and had little impact on the precious metals market.
Strong central bank demand for gold is also supportive of gold prices, following the recent news that bullion held in China's PBOC reserves rose by +40,000 ounces to 74.19 million troy ounces in January, the fifteenth consecutive month the PBOC has boosted its gold reserves.
Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on February 27. 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 3.5-month low on February 23.
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. For more information please view the Barchart Disclosure Policy here.
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