Dollar Index Rises as Economic Indicators Influence Currency Markets

The dollar index (DXY00) increased by +0.38% on Wednesday, building on Tuesday’s gains. This rise followed President Trump’s decision to extend the tariff deadline on 50% of EU goods by five weeks, pushing it from June 1 to July 9.

Additionally, support for the dollar came from rising T-note yields. Gains accelerated in the afternoon after the release of the minutes from the May 6-7 FOMC meeting, which indicated that policymakers are inclined to maintain current interest rates.

Fed Meeting Insights and Manufacturing Survey

The US May Richmond Fed manufacturing survey showed a slight improvement, rising by +4 to -9, aligning with expectations. The FOMC meeting minutes revealed that participants were content to keep interest rates unchanged, citing solid economic growth and a robust labor market.

Currently, markets assign a 2% probability for a -25 bp rate cut at the June 17-18 FOMC meeting.

Euro Falls Against Dollar Amid Weak Economic Data

The EUR/USD (^EURUSD) decreased by -0.31% on Wednesday. The dollar’s strength undermined the euro, compounded by disappointing German economic news, including a larger-than-expected rise in May unemployment and a notable decline in German April import prices.

Despite this, the euro’s losses were partially offset by the ECB’s April 1-year CPI expectations indicator, which rose to +3.1% y/y, the highest in 14 months, a positive sign for ECB policy.

German Economic Conditions

In May, German unemployment increased by +34,000, exceeding expectations of +12,000, marking the steepest rise in nearly three years. The unemployment rate remained stable at 6.3%.

German April import prices fell by -1.7% m/m, surpassing the expected decline of -1.4% m/m, indicating the most significant drop in over two years.

Swaps indicate a 99% likelihood of a -25 bp rate cut by the ECB at the June 5 policy meeting.

Yen Slides as Bond Issuance Concerns Emerge

The USD/JPY (^USDJPY) rose by +0.37%, with the yen hitting a one-week low against the dollar. This decline was fueled by negative news regarding potential government bond issuance cuts and rising T-note yields.

Precious Metals Experience Modest Losses

June gold (GCM25) closed down -5.50 (-0.17%), while July silver (SIN25) fell -0.151 (-0.45%). Precious metals faced bearish pressure from a stronger dollar and rising global bond yields. The FOMC meeting minutes further signaled support for holding rates, impacting precious metals negatively.

Nonetheless, demand for gold rose as an inflation hedge after the ECB’s April CPI expectations exceeded estimates. Geopolitical tensions and ongoing uncertainties in global trade also provided safe-haven support for precious metals.

On the date of publication, Rich Asplund did not have positions in any of the securities mentioned in this article. All information is for informational purposes. Please view the Barchart Disclosure Policy
here.

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