Dollar Index Climbs Amid Tariff Threats and Economic Indicators
Factors Influencing Currency Markets
The dollar index (DXY00) rose by +0.18% on Tuesday as President-elect Trump announced plans to impose a 10% tariff on goods from China and a 25% tariff on products from Canada and Mexico starting his first day in office. Additionally, supportive comments from San Francisco Fed President Daly about ongoing inflation issues and the minutes from the November 6-7 FOMC meeting, which suggested a gradual approach to interest rate cuts, contributed to the dollar’s strength.
Mixed Economic News and Stock Market Impact
Despite the dollar’s ascent, its gains were capped by a stock market rally that lessened the demand for cash. Economic reports presented mixed signals; consumer confidence in November surged to a 16-month high, while new home sales in October dropped to a nearly two-year low.
The US September S&P CoreLogic composite-20 home price index decreased to 4.57% year-over-year, down from +5.21% in August. This result was weaker than the expected growth of +4.70%, marking the smallest annual increase in a year.
In October, new home sales fell significantly, declining by -17.2% month-over-month to 610,000 units, considerably below the anticipated 725,000. The November consumer confidence index from the Conference Board increased by +2.1, reaching a close-to-expectation level of 111.7, while the Richmond Fed’s manufacturing outlook remained unchanged at -14, disappointing expectations of a rise to -11.
Fed Officials on Inflation and Rate Cuts
The FOMC minutes reaffirmed policymakers’ view that a gradual approach to rate cuts is preferred as they expect inflation to move towards the 2% target sustainably if the economy stays near full employment. Daly noted, “Inflation is still printing above our 2% target, so we need to continue to work to bring that down.”
Euro and Yen Movements
EUR/USD (^EURUSD) fell by -0.20% as the euro’s earlier gains were reversed due to a stronger dollar, alongside dovish remarks from ECB Vice President Guindos, which led to a dip in the 10-year German bund yield. Despite Trump’s tariff announcements, the euro’s decline continued as market expectations for an interest rate cut by the ECB have reached 100% for the December 12 meeting.
The USD/JPY (^USDJPY) fell by -0.73%. The yen reached a two-week high against the dollar, bolstered by a greater-than-expected rise in Japan’s November producer service prices, signaling potential hawkish moves from the Bank of Japan. The November PPI for services increased by +2.9% year-over-year, surpassing the +2.5% expectation.
Precious Metals Gains Amid Tariff Concerns
December gold (GCZ24) rose +2.80 (+0.11%), and December silver (SIZ24) increased +0.166 (+0.55%). Precious metals gained slightly after hitting weekly lows, driven mainly by concerns over inflation due to Trump’s proposed tariffs. Additionally, the dovish tone from ECB officials and ongoing geopolitical tensions have increased the demand for gold as a safe-haven asset.
Though metals initially opened lower amid easing Middle Eastern tensions, stronger dollar metrics and rising Treasury yields posed challenges. Further hawkish commentary from San Francisco Fed President Daly and a strong performance in stocks limited precious metal demand on Tuesday.
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.
