Dollar Rallies on US Manufacturing Strength

Economic Indicators - The Eurozone January S&P manufacturing PMI was revised upward by +0.1 to 49.5 from the previously reported 49.4, indicating slight improvement in manufacturing activity [1] - The US January ISM manufacturing index rose +4.7 to 52.6, surpassing expectations of 48.5, marking the strongest pace of expansion in over 3.25 years [3] - German December retail sales increased by +0.1% month-over-month, aligning with expectations, while November retail sales were revised upward to -0.5% from -0.6% [6] Currency Movements - The euro is under pressure, down by -0.33% against the dollar, attributed to a stronger dollar despite the upward revision of the Eurozone manufacturing PMI [1] - The dollar index (DXY) rose by +0.57%, reaching a 1-week high, supported by President Trump's nomination of Keven Warsh as the next Fed Chair, who is perceived as more hawkish [5] - USD/JPY increased by +0.49%, with the yen falling to a 1-week low due to comments from Japanese Prime Minister Takaichi regarding the benefits of a weak currency for export industries [7] Central Bank Policies - The FOMC is expected to cut interest rates by about -50 basis points in 2026, while the BOJ is anticipated to raise rates by +25 basis points, and the ECB is expected to maintain current rates [2] - The markets are pricing in an 11% chance of a -25 basis point rate cut by the FOMC at the next policy meeting on March 17-18 [2] - The BOJ's January 22 policy meeting summary indicated a hawkish stance, with a focus on addressing rising prices, although the market discounts a rate hike at the next meeting on March 19 [9] Precious Metals Market - April COMEX gold is down -18.80 (-0.40%), while March COMEX silver is up +0.459 (+0.58%), reflecting mixed performance in precious metals [10] - Gold prices are pressured by a stronger dollar and easing geopolitical risks, while silver prices received support from the strong ISM manufacturing report [11] - Central bank demand for gold remains strong, with China's PBOC reserves increasing by +30,000 ounces to 74.15 million troy ounces in December, marking the fourteenth consecutive month of increases [16]