The dollar index (DXY00) on Tuesday fell by -0.55% and posted a 1-week low. The dollar retreated Tuesday after President Trump announced a tentative ceasefire between Israel and Iran, which curbed safe-haven demand for the dollar. Also, Tuesday's sharp rally in stocks reduced liquidity demand for the dollar. The dollar weakened further on Tuesday after an unexpected decline in the Conference Board's June US consumer confidence index.
Losses in the dollar were contained Tuesday by hawkish commentary from Fed Chair Powell, New York Fed President Williams, and Atlanta Fed President Bostic, who said they are in no hurry to cut interest rates.
The US Apr S&P CoreLogic composite-20 home price index rose +3.42% y/y, weaker than expectations of +3.90% y/y and the smallest increase in 1-3/4 years.
The Conference Board’s June US consumer confidence index unexpectedly fell -5.4 to 93.0, weaker than expectations of an increase to 99.8.
The US June Richmond Fed manufacturing conditions survey unexpectedly rose +2 to -7, stronger than expectations of a decline to -10.
Comments from Fed Chair Powell signalled he is no rush to cut interest rates when he said, "The effects of tariffs will depend, among other things, on their ultimate level, and for the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance."
Atlanta Fed President Bostic said the Fed doesn't need to cut interest rates, with companies planning to raise prices later this year in response to higher import taxes and with the job market still stable.
New York Fed President Williams said it's "entirely appropriate" for the Fed to hold interest rates steady while they analyze the full impact of policy changes on the job market and inflation.
The markets are discounting the chances at 19% for a -25 bp rate cut after the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) Tuesday rose by +0.39% and posted a 3-1/2 year high. Tuesday's dollar weakness benefited the euro. The euro was also boosted by news that theGerman Jun IFO business climate index rose to a 13-month high. In addition, Tuesday's increase in the 10-year German bund yield to a 1-week high strengthened the euro's interest rate differentials. Dovish comments on Tuesday from ECB Governing Council member Villeroy de Galhau limited gains in the euro, as he stated that the ECB can still cut interest rates within the next six months.
The German Jun IFO business climate index rose +0.9 to a 13-month high of 88.4, stronger than expectations of 88.0.
ECB Governing Council member Villeroy de Galhau said. "If we look at the present assessment of markets so far, inflation expectations remain moderate. If that was confirmed, it could possibly lead in the next six months to further accommodation."
Swaps are discounting the chances at 8% for a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Tuesday fell sharply by -1.01%. The yen rallied Tuesday on optimism that falling energy costs will boost the Japanese economy after crude prices dropped more than -6% to a 1-1/2 week low. Gains in the yen accelerated Tuesday after the 10-year T-note yield dropped to a 1-1/2 month low.
August gold (GCQ25) Tuesday closed down -61.10 (-1.80%), and July silver (SIN25) closed down -0.455 (-1.26%). Precious metals on Tuesday fell sharply, with gold posting a 2-week low. An easing of geopolitical risks has sparked a rally in global equity markets and prompted long liquidation pressures in precious metals on Tuesday, on the announcement of a ceasefire in the Israel-Iran conflict. Precious metals added to their losses Tuesday on hawkish comments from Fed Chair Powell, New York Fed President Williams, and Atlanta Fed President Bostic, who signaled the Fed is in no hurry to cut interest rates.
Precious metals recovered from their worst levels Tuesday after the dollar slid to a 1-week low. Also, dovish comments on Tuesday from ECB Governing Council member Villeroy de Galhau were supportive of precious metals when he said the ECB could still cut interest rates further within the next six months. Fund buying of gold continues to support prices as gold holdings in ETFs rose to a 1-3/4 year high Monday.
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.
