The dollar index (DXY00) on Tuesday rose slightly by +0.03%. The dollar recovered from overnight losses and climbed to a 1.5-week high due to stronger T-note yields. The 10-year T-note yield rose to a 2-week high on Tuesday at 4.43%, which strengthened the dollar's interest rate differentials. Weakness in the yen also benefited the dollar as the yen tumbled to a 2-week low against the dollar on Tuesday. Gains in the dollar were limited as stocks stabilized after President Trump late Monday signaled that he is open to further negotiations on tariffs.
Late Monday, President Trump said he's still open to additional negotiations and that the August 1 deadline for higher tariff rates was "not 100% firm," adding, "we're not going to be unfair" and would look favorably on countries continuing to offer additional concessions.
The markets are discounting a 5% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) on Tuesday recovered from a 1-week low and finished up by +0.17%. The euro recovered early losses and moved higher on optimism about a trade deal between the US and European Union (EU) after a Politico report said the US offered a deal to the EU that would keep the 10% baseline tariffs, with exemptions for sensitive sectors beyond August 1, while a permanent deal is worked out. The euro initially moved lower on Tuesday due to dollar strength and some weaker-than-expected German trade news.
German trade news was weaker than expected after May exports fell by 1.4% m/m, weaker than expectations of -0.5% m/m. Also, May imports fell by 3.8% m/m, which was weaker than expectations of -1.7% m/m and the biggest decline in a year.
Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Tuesday rose by +0.40%. The yen added to Monday's losses on Tuesday and fell to a 2-week low against the dollar. Concerns over fiscal deterioration in Japan are weighing on the yen ahead of the upper house election in Japan on July 20. Japan's ruling Liberal Democratic Party is promising cash handouts to voters while opposition lawmakers are advocating lower taxes. Higher T-note yields on Tuesday also weighed on the yen.
The Japan Jun eco watchers outlook survey rose +1.1 to a 4-month high of 45.9, stronger than expectations of 45.3.
August gold (GCQ25) Tuesday closed down -25.90 (-0.77%), and September silver (SIU25) closed down -0.155 (-0.42%). Precious metals were under pressure Tuesday from a stronger dollar after the dollar index climbed to a 1.5-week high. Also, higher global bond yields on Tuesday were bearish for precious metals. In addition, comments from President Trump that he is open to additional tariff negotiations eased trade tensions slightly and curbed the safe-haven demand for precious metals.
Rising inflation expectations are supportive of gold demand as an inflation hedge and are limiting losses in gold after the US 10-year breakeven inflation rate rose to a 6-week high Tuesday. Also, central bank buying of gold is supporting prices after the People's Bank of China (PBOC) purchased 70,000 MT of gold bullion in June, the eighth consecutive month the PBOC has added gold to its reserves. Losses in silver were contained Tuesday on carryover support from a +10% surge in copper prices to an all-time high after President Trump called for a 50% tariff on US copper imports.
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.
