Dollar Falls as US Economic Data Points to Weakness

The dollar index (DXY00) decreased by -0.47% today. This decline follows a dip from a one-week high, driven by US economic news indicating a lower Q1 core PCE price index and a surprising rise in continuing unemployment claims, now at a 3.5-year high. Additionally, stock market strength has reduced liquidity demand for the dollar. The dollar’s losses intensified after April pending home sales saw their largest drop in over 2.5 years.

Economic Updates Impacting the Dollar

Initially, the dollar rose after a US trade court ruled that certain tariffs imposed by President Trump were illegal. Support for the dollar also came from an upward revision to Q1 GDP data.

Labor Market Weakness

Weekly initial unemployment claims climbed by +14,000 to reach 340,000, exceeding the expected 230,000. Continuing claims also rose unexpectedly by +22,000 to 1.919 million, compared to an anticipated decline to 1.893 million.

Revisions to GDP and Price Indices

Q1 GDP was revised upward to -0.2% (q/q annualized) from a previous estimate of -0.3%. The Q1 core PCE price index was lowered to 3.4% q/q, down from 3.5%. April pending home sales decreased by -6.3% m/m, much worse than the expected -1.0% m/m decline.

Ruling on Tariffs

A unanimous ruling from the US Court of International Trade stated that President Trump improperly invoked an emergency to apply his “Liberation Day” tariffs. This affects Trump’s global 10% flat tariff and raised rates on goods from China and others, but does not impact tariffs under Sections 232 and 301.

Market Speculations on Rate Cuts

Markets currently predict a 2% chance of a -25 basis point rate cut after the June 17-18 FOMC meeting. In contrast, the euro (EUR/USD) rose by +0.61% today, recovering after earlier losses linked to the dollar surge following the tariff ruling.

Yen Performance and Economic Data

The USD/JPY rate fell by -0.40%. The yen rebounded from a two-week low, supported by Fed-friendly economic data and a rise in Japan’s May consumer confidence index, which increased by +1.6 to 32.8, surpassing expectations.

Precious Metals Response

June gold (GCM25) rose by +20.60 (+0.63%), while July silver (SIN25) gained +0.110 (+0.33%). Precious metals rallied after the dollar’s decline, spurred by soft US economic indicators that lowered T-note yields. Prices received additional support from ongoing uncertainties in global trade relations and geopolitical tensions.

Gold had initially fallen to a one-week low due to the tariff ruling, but the subsequent market rally limited safe-haven demand. Easing inflation expectations further impacted gold demand, as the US 10-year breakeven inflation rate reached a two-week low.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.