The dollar index (DXY00) on Tuesday rose by +0.22% and posted a 5-week high. The dollar has carryover support from Monday following the EU-US trade deal that is seen as favoring the US. Also, expectations for the Fed to keep interest rates unchanged at the end of Wednesday's 2-day FOMC meeting are supportive of the dollar. The dollar extended its gains after the US Jun advance goods trade deficit unexpectedly shrank, a supportive factor for Q2 GDP, and after July consumer confidence rose more than expected.
However, the larger-than-expected decline in the Jun JOLTS job openings report was a dovish factor for Fed policy that knocked T-note yields lower and limited gains in the dollar.
The US Jun advance goods trade deficit unexpectedly shrank to -$86.0 billion versus expectations of a widening to -$98.0 billion, a positive factor for Q2 GDP.
The US May S&P CoreLogic composite-20 home price index rose +2.79% y/y, weaker than expectations of +2.91% and the smallest pace of increase in 1.75 years.
US Jun JOLTS job openings fell -275,000 to 7.437 million, weaker than expectations of 7.500 million.
The Conference Board US Jul consumer confidence index rose +2.0 to 97.2, stronger than expectations of 96.0.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 2% at the Tue/Wed FOMC meeting and 65% at the following meeting on September 16-17.
EUR/USD (^EURUSD) Tuesday fell by -0.28% and posted a 5-week low. The euro is being weighed down by carryover pressure from Monday, when the announced EU-US trade deal was seen as favoring the US, with 15% tariffs imposed on most EU goods, which could pose headwinds to the Eurozone economy due to the higher tariffs. Also, the ECB's Jun inflation expectations eased, a dovish factor for ECB policy and negative for the euro.
The ECB's Jun 1-year inflation expectations eased to +2.6% from 2.8% in May. The ECB's Jun 3-year inflation expectations were unchanged from May at +2.4%.
Swaps are pricing in a 14% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.11%. The yen recovered from a 1-week low against the dollar Tuesday and moved higher as a slide in T-note yields sparked short covering in the yen. Reduced political uncertainty is also supportive for the yen after Japanese Prime Minister Ishiba insisted he would stay on as Prime Minister despite his LDP party losing its majority in the July 20 upper house elections.
The yen initially moved lower Tuesday as recent US trade deals have eased global trade tensions and reduced safe-haven demand for the yen. The yen continues to be undercut by concerns that the LDP's loss of its majority in Japan's upper house in the July 20 elections may lead to fiscal deterioration in Japan's government finances, as the government boosts spending and implements tax cuts.
August gold (GCQ25) Tuesday closed up +14.00 (+0.42%), and September silver (SIU25) closed up +0.065 (+0.17%). Precious metals on Tuesday settled higher, with silver rebounding from a 1.5-week low. Precious metals moved higher on Tuesday due to a drop in T-note yields. Also, a reversal in stock prices to lower on the day prompted some safe-haven demand for precious metals. In addition, precious metals continue to receive safe-haven support from geopolitical risks, including the conflicts in Ukraine and the Middle East. Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a two-year high last Friday, and silver holdings in ETFs reached a three-year high on Monday.
Tuesday's rally in the dollar index to a 5-week high is bearish for metals. Also, easing trade tensions have curbed safe-haven demand for precious metals after Commerce Secretary Lutnick said a 90-day extension of a trade truce with China was a likely outcome with negotiations between the two countries underway in Stockholm.
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.
