The dollar index (DXY00) Tuesday rose by +0.83%. The dollar moved higher on Tuesday on an increase in liquidity demand for the dollar as stocks fell after President Trump downplayed the chance of an early end to the Israel-Iran war and said he wants "unconditional surrender" from Iran. Gains in the dollar accelerated Tuesday afternoon on an increase in safe-haven demand as President Trump was set to meet his national security team, fueling speculation that the US may be on the verge of joining the attack against Iran.
The dollar rallied Tuesday despite weaker-than-expected US retail sales and NAHB housing market reports. The dollar continues to be undercut by expectations of weaker US economic growth and reduced foreign investment in the US caused by President Trump's tariffs.
US May retail sales fell -0.9% m/m, weaker than expectations of -0.6% m/m. May retail sales ex-autos unexpectedly fell -0.3% m/m versus expectations of a +0.2% m/m increase.
The US May import price index ex-petroleum rose +0.2% m/m, slightly stronger than expectations of +0.1% m/m.
The US June NAHB housing market index unexpectedly fell -2 to a 2-1/2 year low of 32, weaker than expectations of an increase to 36.
President Trump played down the chance of a ceasefire in the Israel-Iran war when he said that he hasn't reached out to Iran for peace talks "in any way, shape or form" and that a "permanent end and not a ceasefire" to the nuclear dispute with Iran would be the goal.
The markets are discounting the chances at 0% for a -25 bp rate cut after the Tue-Wed FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.72%. The euro retreated Tuesday due to a stronger dollar. Also, dovish comments Tuesday from ECB Governing Council member Stournaras weighed on the euro when he said the ECB may proceed with additional interest rate cuts if economic growth and inflation slow more than expected. The euro fell despite the German June ZEW survey expectations of economic growth climbing more than expected.
The German June ZEW survey expectations of economic growth index rose +22.3 to 47.5, stronger than expectations of 35.0.
ECB Governing Council member Stournaras said the ECB has found "equilibrium" on interest rates, inflation, and economic growth, but "if the Eurozone economy weakens further, if inflation decreases further below the target, then we may proceed to further rate cuts."
Swaps are discounting the chances at 6% for a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.42%. The yen on Tuesday gave up overnight gains and turned lower after the BOJ kept interest rates unchanged as expected and after BOJ Governor Ueda said he couldn't comment on the possibility of a rate hike coming in the near term. The yen initially moved higher against the dollar Tuesday on increased safe-haven demand after President Trump downplayed the possibility of an early end to the Israel-Iran war. Also, Tuesday's action by the BOJ to cut its bond purchases for Q3 was supportive of the yen. In addition, lower T-note yields on Tuesday are bullish for the yen.
As expected, the BOJ voted 9-0 to keep its benchmark interest rate unchanged at 0.50% and voted to cut its Q3 monthly bond purchases to 3.705 trillion yen from 4.105 trillion yen in Q2. The BOJ also announced it will trim its monthly bond purchases from April 2026 at a quarterly pace of 200 billion yen ($1.3 billion) from the current 400 billion yen.
BOJ Governor Ueda said he can't comment on the possibility of a rate hike coming in the near term, and any move in interest rates will hinge on the BOJ's assessment of the economic data.
August gold (GCQ25) Tuesday closed down -10.40 (-0.30%), and July silver (SIN25) closed up +0.703 (+1.93%). Precious metals on Tuesday settled mixed, with silver soaring to a 13-year high. Tuesday's dollar strength was negative for precious metals. Gold prices were also pressured after the BOJ announced it was cutting its bond purchases for Q3.
Precious metals have safe-haven support from Middle East hostilities after President Trump today downplayed the chance of an early end to the Israel-Iran war and said he wants "unconditional surrender" from Iran. Also, lower global bond yields Tuesday were supportive of precious metals. In addition, global trade uncertainty is boosting safe-haven demand for precious metals after President Trump indicated last Wednesday that he is moving ahead with his reciprocal tariffs. Gold garnered some support Tuesday as an inflation hedge after the US 10-year breakeven inflation rate rose to a 1-week high.
Silver garnered support Tuesday after US May manufacturing production rose as expected, and after the German Jun ZEW survey expectations of economic growth rose more than expected, positive factors for industrial metals demand. Silver prices added to their gains Tuesday on technical buying after prices posted a new 13-year high.
