The dollar index (DXY00) Tuesday fell by -0.57%. The dollar was under pressure Tuesday because of concerns that US trade policies will lead to economic stagflation. Losses in the dollar accelerated after the US Mar trade deficit widened to a record high, a bearish factor for Q1 GDP.
The US Mar trade deficit was a record -$140.5 billion, wider than expectations of -$137.2 billion and a negative factor for Q1 GDP.
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The markets are discounting the chances at 2% for a -25 bp rate cut after Wednesday’s 2-day FOMC meeting.
EUR/USD (^EURUSD) Tuesday rose by +0.51%. The euro rose moderately on Tuesday due to a weaker dollar. Also, Tuesday’s upside revision to the Eurozone Apr S&P composite PMI is bullish for the euro. Gains in the euro accelerated Tuesday on an easing of political instability in Germany after Fredrich Merz secured parliamentary backing in a second round of voting to become Germany’s next chancellor. Gains in the euro were limited to the weaker-than-expected Eurozone Mar PPI, a dovish factor for ECB policy.
Eurozone Mar PPI fell -1.6% m/m and rose +1.9% y/y, weaker than expectations of -1.4% m/m and +2.5% y/y.
The Eurozone Apr S&P composite PMI was revised upward by +0.3 to 50.4 from the previously reported 50.1.
Swaps are discounting the chances at 95% for a -25 bp rate cut by the ECB at the June 5 policy meeting.
USD/JPY (^USDJPY) Tuesday fell by -0.89%. The yen rallied against the dollar Tuesday as weakness in stocks due to US trade turmoil boosted safe-haven demand for the yen. Lower T-note yields on Tuesday also supported the yen. Moves in the yen may be exaggerated on Tuesday with Japanese markets closed for a National holiday.
June gold (GCM25) Tuesday closed up +100.50 (+3.03%), and July silver (SIN25) closed up +0.907 (+2.79%). Precious metals prices rallied sharply on Tuesday, with gold posting a 2-week high and silver posting a 1-week high. Tuesday’s weaker dollar is bullish for metals prices. Also, the ongoing global trade turmoil caused by the US tariff policy has boosted the safe-haven demand for precious metals. An increase in inflation expectations has boosted demand for precious metals as an inflation hedge as Tuesday’s 10-year breakeven inflation rate rose to a 1-week high. In addition, lower T-note yields on Tuesday were supportive of precious metals. Finally, geopolitical risks in the Middle East continue to support safe-haven demand for precious metals as the Israel-Hamas conflict continues. Also, Israel today launched an airstrike on the Houthi-controlled airport and a power station in Sanaa, Yemen’s capital, in retaliation for a Houthi missile strike against Israel last weekend.
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