Dollar Strengthens Amid Trade Talks, Euro Declines on Retail Sales
The dollar index (DXY00) increased by +0.48% on Wednesday. This uptick in the dollar came as optimism grew over easing US-China trade tensions. A scheduled trade meeting this weekend marks the first dialogue since President Trump imposed tariffs on US trading partners. Additionally, positive US economic data supported the dollar, highlighted by a rise in March consumer credit, which outperformed expectations.
In trade-related developments, US Treasury Secretary Bessent and US Trade Representative Greer will head to Switzerland for discussions on Saturday and Sunday with Chinese Vice Premier He Lifeng. The focus of these talks is to de-escalate the ongoing tariff dispute. Bessent remarked that the current tariff rates are unsustainable, likening them to a trade embargo.
March consumer credit increased by +$10.172 billion, surpassing predictions of +$9.387 billion. In its latest meeting, the Federal Open Market Committee (FOMC) decided to keep its federal funds target range steady at 4.25%-4.50% and acknowledged rising uncertainty regarding the economic outlook. The committee expressed concerns that risks related to higher unemployment and inflation are increasing.
Fed Chair Powell emphasized that the Fed is not in a hurry to adjust interest rates and is prepared to wait for more clarity regarding trade policies. Currently, markets are estimating a 23% chance of a -25 basis point cut following the FOMC meeting on June 17-18.
EUR/USD and Eurozone Economic Indicators
The EUR/USD (^EURUSD) fell by -0.49% on Wednesday, losing ground as the dollar gained strength ahead of the US-China talks. Additionally, news that Eurozone retail sales fell for the first time in five months contributed to the euro’s losses. Retail sales in March dropped by -0.1% month-over-month, aligning with expectations.
Interestingly, German factory orders showed a positive trend, rising by +3.6% month-over-month, exceeding predictions of +1.3%. Market expectations indicate a 96% likelihood of a -25 basis point rate cut from the European Central Bank (ECB) at its upcoming June 5 policy meeting.
Yen’s Weakness Amid Trade Optimism
Meanwhile, the USD/JPY (^USDJPY) increased by +0.95%, signaling moderate losses for the yen. Increased optimism regarding US-China trade negotiations has diminished the yen’s appeal as a safe-haven asset. Additionally, Wednesday’s hawkish stance from the FOMC further supported the dollar, putting additional pressure on the yen.
In positive economic news for Japan, the April Jibun Bank services PMI was revised upwards to 52.4, slightly higher than the previous figure of 52.2.
Precious Metals Market Dynamics
In the commodities market, June gold (GCM25) closed down -30.90 (-0.90%), while July silver (SIN25) fell by -0.590 (-1.72%). On Wednesday, precious metals ceded early gains and settled lower. The dollar’s strength, resulting from the trade talks and the FOMC’s decision to keep interest rates unchanged, prompted long liquidation in these assets.
Initially, precious metals benefited from increased demand due to geopolitical tensions in South Asia after India launched military strikes against Pakistan in response to a terrorist attack in Kashmir. Pakistan has labeled India’s actions as an “act of war,” indicating potential retaliation. The global trade turmoil linked to US tariff policy has also elevated the safe-haven appeal of precious metals.
Moreover, ongoing geopolitical risks in the Middle East, particularly the Israel-Hamas conflict, continue to influence demand for safe-haven assets. Notably, Israel recently conducted airstrikes on sites in Yemen following missile attacks earlier in the week.
On the date of publication, Rich Asplund did not have any positions in the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
