Dollar Declines Amid Trade Relief and Economic Concerns
The dollar index (DXY00) decreased by -0.94% on Tuesday. The decline came as trade worries diminished after the U.S. postponed a 25% tariff on Canadian goods. Additionally, China’s restrained reaction to U.S. tariffs alleviated fears of an escalating trade war. The stabilization of stock prices further reduced the demand for liquidity in dollars.
Weak Economic Reports Drive Dollar Losses
Tuesday’s drop in the dollar was accelerated by disappointing U.S. economic data, including the JOLTS job openings and factory orders reports. Comments from Chicago Fed President Goolsbee added to the mix; he urged caution regarding interest rate cuts. He mentioned that the Federal Reserve should be careful given potential inflation risks. San Francisco Fed President Daly echoed this sentiment, stating that the U.S. economy remains strong, allowing the Fed to take its time with interest rate decisions.
In December, U.S. JOLTS job openings fell by -556,000 to 7.6 million, below expectations of 8.0 million, indicating a weaker labor market.
Factory orders also disappointed, decreasing by -0.9% month-over-month, more than the predicted -0.8% and marking the largest decline in six months.
Daly emphasized that “the Fed can take its time to look at what’s coming in, both on the economy and any policy changes” prior to deciding on interest rates.
Meanwhile, in a statement on Monday, Goolsbee remarked, “The Fed has got to be a little more careful and more prudent about how fast interest rates can come down due to risks of inflation re-emerging.”
Currently, markets are estimating a 15% chance for a -25 bp rate cut at the next Federal Open Market Committee (FOMC) meeting on March 18-19.
Euro and Yen Respond to Economic Shifts
The EUR/USD (^EURUSD) pair rose by +0.40% on Tuesday. The euro regained strength after the dollar weakened due to disappointing U.S. economic reports. Higher yields on European government bonds also supported the euro by enhancing interest rate differentials. However, trade tensions remain a concern, with President Trump threatening potential tariffs on the Eurozone, which could hinder growth.
Swaps are currently indicating a full 100% chance of a -25 bp rate cut by the European Central Bank (ECB) during its March 6 policy meeting.
Similarly, the USD/JPY (^USDJPY) lost -0.309% on Tuesday. The yen recovered from early losses as U.S. T-note yields and the dollar declined. Support for the yen came from rising Japanese government bond yields, with the 10-year JGB bond hitting a 13-year peak of 1.281%.
Initially, the yen dropped as easing trade war fears diminished its safe-haven appeal, following the U.S. announcement to delay tariffs on Canada and Mexico.
Precious Metals See Gains Amid Market Dynamics
April gold (GCJ25) closed up +18.70 (+0.65%), and March silver (SIH25) rose by +0.496 (+1.52%). Both precious metals experienced moderate gains, with April gold reaching a contract high and nearest futures (G25) hitting an all-time high of $2,853.30 per ounce. Silver also reached a 7-week high. The weaker dollar contributed positively to metal prices. Recent U.S. tariffs on Chinese goods, which provoked retaliation and heightened trade war possibilities, fueled demand for safe-haven assets like gold and silver.
However, gains in precious metals moderated due to a reduction in safe-haven demand after the U.S. delayed tariffs on Canada and Mexico. Additionally, the stabilizing stock market limited the rush into precious metals. Industrial metal prices faced pressure as tariffs between the U.S. and China raised concerns of a trade war, potentially harming economic growth and demand for these metals.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information in this article is for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
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