The dollar index (DXY00) fell to a 1-week low on Monday and finished down by -0.83%.  The dollar was under pressure Monday after a Bloomberg report said that Chinese regulators have advised financial institutions to rein in their holdings of US Treasuries, fueling concerns that foreigners will reduce their demand for US dollar assets.  The strength of the Chinese yuan also undercut the dollar after it rose to a 2.5-year high against the dollar on Monday.  Losses in the dollar accelerated Monday after National Economic Council Director Hassett said we should expect slightly lower US job numbers, citing slower population growth and higher productivity.

The dollar sank to a 4-year low late last month when President Trump said he’s comfortable with the recent weakness in the dollar.  Also, the dollar remains under pressure as foreign investors pull capital from the US amid a growing budget deficit, fiscal profligacy, and widening political polarization. 

Swaps markets are discounting the odds at 19% for a -25 bp rate cut at the next policy meeting on March 17-18.

The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026. 

EUR/USD (^EURUSD) rallied to a 1-week high on Monday and finished up by +0.88%.  Monday’s weaker dollar lifted the euro.  Also, Monday’s news that showed the Eurozone Feb Sentix investor confidence index climbing more than expected to a 7-month high was supportive of the euro. 

The Eurozone Feb Sentix investor confidence index rose by +6.0 to a 7-month high of 4.2, stronger than expectations of 0.0.

ECB Governing Council member Peter Kazimir said the ECB should only alter interest rates “if there is a major departure from our baseline scenario” for growth and inflation.

Swaps are discounting a 2% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.

USD/JPY (^USDJPY) on Monday fell by -0.91%.  The yen recovered from a 2-week low against the dollar on Monday and moved sharply higher as comments from Japanese Finance Minister Katayama sparked short-covering in the yen when she said she would communicate with financial markets on Monday if needed, and reiterated that she was keeping in close contact with US Treasury Secretary Bessent to maintain stability in the dollar-yen movement.

The yen initially moved lower on Monday after Japanese Prime Minister Takaichi’s Liberal Democratic Party secured a two-thirds super majority in the 465-seat lower house in Sunday’s election, giving her a strong mandate to push ahead with her pro-stimulus policies that could lead to wider fiscal deficits.  Also, Monday’s weaker-than-expected Japanese economic news, including the Jan Eco Watchers Outlook survey and Dec real cash earnings, weighed on the yen.

The Japan Jan eco watchers outlook survey rose +0.6 to 50.1, weaker than expectations of 50.7.

Japan Dec real cash earnings unexpectedly fell -0.1% y/y, weaker than expectations of +0.8% y/y.

The markets are discounting a +27% chance of a BOJ rate hike at the next meeting on March 19.

April COMEX gold (GCJ26) on Monday closed up +99.60 (+2.00%), and March COMEX silver (SIH26) closed up +5.339 (+6.94%). 

Gold and silver prices settled sharply higher on Monday after the dollar index tumbled to a 1-week low. Also, concerns that foreign investors may be diverting their dollar assets into precious metals are bullish for metals prices after Bloomberg reported that Chinese regulators told financial institutions to scale back their holdings of US debt, reviving worries over the haven status of US assets.

Precious metals are supported by safe-haven demand amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East, and Venezuela.  Also, precious metals are surging as the dollar debasement trade gathers steam.  Late last month, President Trump said that he’s comfortable with the recent weakness in the dollar, which sparked demand for metals as a store of value.  In addition, US political uncertainty, large US deficits, and uncertainty regarding government policies are prompting investors to cut holdings of dollar assets and shift into precious metals. 

Strong central bank demand for gold is also supportive of 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. 

Finally, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC’s December 10 announcement of a $40 billion-per-month liquidity injection into the US financial system.

Gold and silver plunged from record highs on January 30 when President Trump announced he had nominated Keven Warsh as the new Fed Chair, which fueled massive liquidation of long positions in precious metals.  Mr. Warsh is one of the more hawkish candidates for Fed Chair and is seen as less supportive of deep interest rate cuts.

Fund demand for precious metals remains strong, with long holdings in gold ETFs climbing to a 3.5-year high on January 28.  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 2.5-month low last Monday.