Dollar Index Hits 4-Month Low Amid Growing Trade War Concerns
The dollar index (DXY00) decreased by -0.57% on Tuesday, reaching a 4-3/4 month low. This decline follows last week’s announcement from the US regarding tariffs imposed on Canada, China, and Mexico, raising fears of an impending trade war that could hinder economic growth. Further pressure on the dollar came on Tuesday when President Trump increased the tariff rate on US imports of steel and aluminum from 25% to 50%. This retaliatory measure followed Ontario’s decision to implement a 25% export tariff on electricity shipped to the US.
Despite the downward trend, the dollar found some support on Tuesday after the US Job Openings and Labor Turnover Survey (JOLTS) for January revealed an unexpected rise in job openings by +232,000, bringing the total to 7.74 million. This figure exceeded analysts’ expectations, which predicted no change at 7.60 million. Additionally, ongoing weaknesses in the stock market have increased the demand for liquidity, providing marginal support for the dollar.
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Market focus this week is likely to shift to Wednesday’s February US Consumer Price Index (CPI) report, where a slight easing to +2.9% year-over-year is anticipated, down from +3.0% in January. The core CPI is also expected to relax, projected to drop to +3.2% year-over-year from +3.3% in January. Attention will further be directed towards US trade policies, particularly with the implementation of a 25% tariff on steel and aluminum imports scheduled for Wednesday. Looking ahead to Thursday, the February Producer Price Index (PPI) for final demand is expected to decrease to +3.2% year-over-year from +3.5% in January. Lastly, on Friday, the University of Michigan’s consumer sentiment index for March is projected to fall -1.2, settling at 63.5. Additionally, market participants will also be keenly observing whether Congress can pass a spending bill to avoid a government shutdown before the March 15 deadline.
Currently, the market is pricing in only a 4% chance of a -25 basis point rate cut at the Federal Open Market Committee (FOMC) meeting on March 18-19.
Euro Strengthens as Dollar Weakens
The euro (EUR/USD) appreciated by +0.87% on Tuesday, reaching a 5-month high, largely benefiting from the dollar’s weakness. The euro gained further momentum after the German Green Party leader stated they were prepared to engage in negotiations regarding defense spending with the prospective ruling coalition led by Chancellor-in-waiting Merz.
Market imbalances suggest a 50% likelihood of a -25 basis point rate cut by the European Central Bank (ECB) during its April 17 policy meeting.
Yen Experiences Moderate Losses
The USD/JPY pair increased by +0.31% on Tuesday. The yen saw a drop from a 5-1/4 month high against the dollar, resulting in moderate losses attributed to weaker-than-expected Japanese economic indicators. Higher yields on U.S. treasury notes also negatively impacted the yen.
Specifically, Japan’s household spending in January grew by +0.8% year-over-year, falling short of the anticipated +3.7%. Furthermore, the country’s Q4 GDP was revised downward to +2.2% (annualized quarter-over-quarter), a decline from the previously reported +2.8%. On a more positive note, Japan’s February machine tool orders rose by +3.5% year-over-year, marking the fifth consecutive monthly increase.
Precious Metals See Gains Amid Market Changes
April gold (GCJ25) increased by +21.50 (+0.74%) on Tuesday, while May silver (SIK25) rose by +0.617 (+1.90%). Precious metals reversed early losses to close moderately higher, supported by the dollar index’s decline to a 4-3/4 month low. This dip in the dollar is generally favorable for metal prices. Additionally, ongoing safe-haven demand stemming from US tariffs and retaliatory actions has contributed to rising prices in the precious metals market, particularly after President Trump announced the hike in tariffs on steel and aluminum imports from Canada.
However, increasing global government bond yields on Tuesday created a bearish outlook for precious metals. A downward revision of Japan’s Q4 GDP also negatively affected silver prices due to potential repercussions for industrial metal demand. Concerns surrounding US tariff policies further compound these worries, raising fears of a trade war that could stifle economic growth and diminish global 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
