The dollar index (DXY00) on Tuesday fell by -0.13%. The dollar on Tuesday added to Monday's losses and posted a 3-1/3 year low. The dollar remains under pressure due to uncertainties over US trade policies, with many nations trying to negotiate trade deals with the US before President Trump's July 9 deadline.
Also, rising deficits are bearish for the dollar as the Congressional Budget Office estimates the Republicans' reconciliation bill making its way through Congress would add nearly $3.3 trillion to US budget deficits over the next ten years. The dollar recovered most of its losses on Tuesday's stronger-than-expected ISM manufacturing and JOLTS job openings reports.
The US June ISM manufacturing index rose +0.5 to 49.0, stronger than expectations of 48.8. Also, the June ISM prices paid sub-index rose +0.3 to 69.7, stronger than expectations of 69.5.
US May JOLTS job openings unexpectedly rose +374,000 to a 6-month high of 7.769 million, showing a stronger labor market than expectations of a decline to 7.300 million.
Fed Chair Powell said he expects the impacts of tariffs to show up in inflation data over the coming months, but the impact could be "higher or lower, or later or sooner than we expected."
The markets are discounting a 21% chance of a -25 bp rate cut at the July 29-30 FOMC meeting.
EUR/USD (^EURUSD) Tuesday fell by -0.01%. The euro fell from a 3-3/4 year high on Tuesday and posted modest losses. The euro came under pressure due to comments from ECB Governing Council member Kazaks, who said significant gains for the euro could warrant another ECB rate cut. Also, Tuesday's inflation news was dovish on balance and was bearish for the euro.
The euro initially moved higher on Tuesday due to the dollar's broad weakness. The euro also garnered support from Tuesday's economic news, which showed an upward revision to the Eurozone's June manufacturing PMI and stronger-than-expected German labor market data. In addition, hawkish comments from ECB Governing Council member Muller were positive for the euro when he said he was not in favor of additional ECB interest rate cuts.
The Eurozone June CPI edged up to +2.0% y/y from +1.9% y/y in May, right on expectations. The June core CPI was unchanged from May at +2.3% y/y, right on expectations.
The ECB May 1-year CPI inflation expectations unexpectedly eased to +2.8% from +3.1% in Apr, versus expectations of no change at +3.1%. The May 3-year CPI expectations unexpectedly eased to +2.4% from +2.5% in Apr, versus expectations of no change at +2.5%.
The Eurozone Jun manufacturing PMI was revised upward by +0.1 to 49.5 from the previously reported 49.4.
The German June unemployment change rose by +11,000, showing a stronger labor market than expectations of +15,000. The June unemployment rate was unchanged at 6.3%, showing a stronger labor market than expectations of an increase to 6.4%.
ECB Governing Council member Kazaks said, "If the euro were to significantly appreciate further, it could weigh down on inflation and exports, which could tilt the balance toward another ECB interest rate cut."
ECB Governing Council member Muller said, "For the moment it's not obvious to me that the ECB needs to go into expansionary territory, so it's quite reasonable for now to keep interest rates where they are."
Swaps are pricing in a 6% chance of a -25 bp rate cut by the ECB at the July 24 policy meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.22%. The yen climbed to a 3-1/2 week high against the dollar on Tuesday. Strength in Tuesday's Japanese economic news supported the yen after the June consumer confidence index rose more than expected to a 4-month high and the Tankan Q2 large manufacturing business conditions survey unexpectedly increased. The yen gave up over half of its gains after T-note yields moved higher on better-than-expected US economic news.
The Japan June consumer confidence index rose +1.7 to a 4-month high of 34.5, stronger than expectations of 33.5.
The Japan Tankan Q2 large manufacturing business conditions survey unexpectedly rose by +1 from Q1 to 13, stronger than expectations of a decline to 10.
August gold (GCQ25) Tuesday closed up +42.10 (+1.27%), and September silver (SIU25) closed up by +0.225 (+0.62%). Precious metals on Tuesday settled higher. Tuesday's selloff in the dollar index to a 3-1/3 year low propelled metals prices higher. Gold also has support as a store of value due to concerns that President Trump's reconciliation bill will increase the US budget deficit by $3.3 trillion over the next ten years, according to the CBO. In addition, trade uncertainty has boosted demand for safe-haven assets, including precious metals, as nations scramble to negotiate trade deals with the US before President Trump's July 9 deadline. Precious metals fell back from their best levels on Tuesday, following stronger-than-expected US economic news, including the June ISM manufacturing and May JOLTS job openings reports, which are hawkish factors for Fed policy.
Silver prices found support on Tuesday's global economic news that showed stronger than expected US and Eurozone manufacturing activity, a positive factor for industrial metals demand. Fund buying of silver continues to support prices after silver holdings in ETFs rose to a 2-3/4 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.
