US Dollar Gains Ground Amid Tax Cut Hopes and Dismal Home Sales

The dollar index (DXY00) has risen by +0.28% today, reflecting a moderate increase driven by renewed optimism for prompt action on President Trump’s tax cut plans. This uptick follows the passage of a budget blueprint by House Republicans on Tuesday evening. However, the dollar’s gains are somewhat tempered by disappointing new home sales data for January, which fell more than anticipated. Additionally, robust stock performance has diminished the demand for dollar liquidity.

January Home Sales Drop Below Expectations

New home sales in the US for January decreased by -10.5% month-over-month, totaling 657,000, which is short of the expected 680,000.

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Upcoming Economic Indicators to Watch This Week

This week’s economic calendar is packed. The US Q4 GDP report set for Thursday is anticipated to reflect an annualized increase of +2.3%, alongside a +4.1% rise in personal consumption. On Friday, the January PCE price index report, the Fed’s favored inflation measure, is expected to see a slight decline to +2.5% year-over-year from December’s +2.6%. The core index is projected to drop to +2.6% from +2.8%. Should these expectations be met, it would maintain the measures above their 3-3/4 year lows recorded in 2024 at +2.1% and +2.6%, respectively, and significantly above the Fed’s +2% inflation target.

The markets are currently pricing in a mere 2% chance for a -25 basis point rate cut at the upcoming FOMC meeting on March 18-19.

Euro Weakness Continues in Global Markets

The EUR/USD (^EURUSD) is down by -0.29% today, primarily influenced by the dollar’s strength. The euro is also facing pressure after the German March GfK consumer confidence index unexpectedly dropped to an 11-month low. Today’s decline in the 10-year German bund yield to a 1-1/2 week low has contributed to the euro’s weakened interest rate differentials. Further, potential increases in US tariffs on European goods are casting a shadow over the euro’s performance.

The German March GfK consumer confidence index decreased by -2.1 to a low of -24.7, falling short of expectations which anticipated an increase to -21.6.

ECB Rate Cut Anticipation Grows

Swaps are indicating a 100% likelihood for a -25 basis point rate cut by the European Central Bank at the policy meeting on March 6.

Yen Faces Pressure Following Leading Index Downgrade

In currency trading, USD/JPY (^USDJPY) is up by +0.50%. The yen has slipped back after reaching a 4-1/2 month high against the dollar on Tuesday. A downward revision to Japan’s December leading index CI has negatively impacted the yen’s performance. Additionally, the 10-year Japan JGB bond yield has decreased to a 2-week low of 1.320%, further straining the yen’s interest rate differentials.

The Japan December leading index CI was adjusted down by -0.6 to 108.3, down from the initial report of 108.9.

Precious Metals Show Mixed Responses

April gold (GCJ25) is up by +1.60 (+0.05%), while March silver (SIH25) has gained +0.299 (+0.94%). Precious metals prices are recovering ground due to heightened safe-haven demand amidst President Trump’s tariff threats. Moreover, silver has received additional support from an upswing in copper prices to a 1-1/2 week high following Trump’s executive order to explore potential tariffs on US copper imports. However, these gains in metals are moderated by a stronger dollar and reduced safe-haven demand prompted by rising stock 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.

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