Dollar Strengthens Amid Tariff Talks and Mixed Economic Indicators
The dollar index (DXY00) rose by +0.51% on Tuesday, finding support from President Trump’s recent tariff proposals and higher Treasury yields. In a statement made Monday night, Trump mentioned he is contemplating tariffs on various imports, including steel and semiconductor chips, and suggested these might be “much bigger” than the current 2.5%. Meanwhile, rising T-note yields helped improve interest rate differentials, bolstering the dollar’s value.
Economic Data Sends Mixed Signals
US economic news on Tuesday revealed a mix of results for the dollar. December capital goods new orders increased by +0.5% month-over-month, outperforming expectations of a +0.3% gain. Conversely, the Conference Board’s January consumer confidence index dropped unexpectedly by -5.4 points to a four-month low of 104.1, falling short of the anticipated 105.7.
Additionally, the S&P CoreLogic composite-20 home price index for November rose by +4.33% year-over-year, slightly above predictions of a 4.24% increase. The January Richmond Fed manufacturing survey also showed improvement, with current conditions rising +6 to an 8-month high of -4, better than expectations of no change.
Market expectations currently place the chances of a -25 basis point cut at the January 28-29 Federal Open Market Committee (FOMC) meeting at just 1%.
Euro Under Pressure
The euro (EUR/USD) declined by -0.55% on Tuesday, experiencing pressure from a stronger dollar and anticipation of a -25 basis point rate cut by the European Central Bank (ECB) in their upcoming meeting on Thursday. Swaps indicate a 100% probability for this interest rate cut.
Yen Declines Amid Economic News
The USD/JPY currency pair increased by +0.67% as the yen weakened due to dollar strength and rising T-note yields. Trump’s tariff comments also escalated trade tensions, negatively impacting the yen’s value. Japan’s economic news provided a mixed picture: the December PPI service prices unexpectedly eased to +2.9% year-over-year from +3.0% in November, while machine tool orders were revised upward to a +12.6% year-over-year increase, the largest gain in two and a half years.
Pare Gains for Precious Metals
February gold (GCG25) closed up +29.10 (+1.06%), and March silver (SIH25) increased +0.468 (+1.54%) on Tuesday, reflecting moderate gains in precious metals. Comments from President Trump regarding potential tariffs may heighten price pressures, increasing demand for precious metals as an inflation hedge. Additionally, the stronger economic indicators from the US and Japan support industrial metals demand.
However, a stronger dollar and rising global government bond yields posed bearish factors for precious metals. Moreover, a recovering stock market diminished the safe-haven appeal for these assets. Trump’s plan to increase tariffs could ignite a trade war that may hinder economic growth, potentially reducing demand for industrial metals, a consideration that weighs on silver prices.
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.
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