Dollar Index Rises as Tariff Deadline Extended; Euro Weakens

The dollar index (DXY00) increased by 0.18%. This follows President Trump extending the deadline for a 50% tariff on EU goods, pushing it to July 9 from June 1. Additionally, higher T-note yields have bolstered the dollar today.

However, dollar gains face some headwinds from last Thursday’s House approval of Trump’s tax and spending plan, which is expected to worsen the US budget deficit.

The May Richmond Fed manufacturing survey reported a +4 increase to -9, aligning with expectations. Markets are currently pricing in a 2% probability of a 25 bp rate cut after the June 17-18 FOMC meeting.

Today, EUR/USD (^EURUSD) is down by 0.11%, primarily due to dollar strength. Weaker-than-expected economic data contributed to euro losses, specifically a rise in German May unemployment and a drop in April import prices. However, the euro’s decline is somewhat tempered by higher-than-expected ECB Apr 1-year CPI expectations of +3.1% y/y, which supports a hawkish policy stance.

In detail, German May unemployment rose by 34,000, exceeding expectations of 12,000, marking the largest increase in nearly three years. The unemployment rate remained stable at 6.3%. Furthermore, the German Apr import price index declined by 1.7% m/m, versus an anticipated 1.4% m/m, reflecting the most significant decrease in over two years.

Swaps currently indicate a 98% likelihood of a 25 bp rate cut by the ECB at the upcoming June 5 meeting.

USD/JPY (^USDJPY) is up by 0.24%, with the yen sliding to a one-week low amid negative sentiment from yesterday’s report. Japan’s finance ministry has solicited input on government bond issuance, signaling potential debt reduction. In addition, rising T-note yields are exerting bearish pressure on the yen.

In the commodities market, June gold (GCM25) rose by +4.10 (+0.12%), while July silver (SIN25) fell by -0.021 (-0.06%). Precious metals are experiencing mixed results after significant losses on Tuesday, driven by a stronger demand for gold due to rising inflation expectations. The ECB Apr 1-year CPI expectations bolstered this demand.

Nevertheless, factors such as a stronger dollar and higher global bond yields remain bearish for precious metals. Additionally, silver is facing pressure from concerns about a potential escalation in the global trade war, which could lower demand for industrial metals.

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.
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