US Dollar Struggles Amid Economic Concerns and Tariff Anxiety
Dollar Index Declines as Consumer Confidence Dips to 8-Month Low
The dollar index (DXY00) fell by -0.27% on Tuesday due to disappointing US economic news and lingering tariff concerns. Additionally, a significant -11 basis point drop in the 10-year T-note yield weakened the dollar’s appeal by diminishing its interest rate advantages.
On Tuesday, the February Conference Board US consumer confidence index decreased sharply by -7.0 points, reaching an 8-month low of 98.3, which was much lower than expectations for a decline to 102.5. This decline marks the largest drop in 2-1/2 years and represents the third consecutive monthly decrease.
Presidential Tariff Updates Heighten Market Tension
Market nerves continue to rise over the potential negative impact of tariffs on the US economy. At a joint press conference with French President Macron, President Trump confirmed that US tariffs on imports from Mexico and Canada would proceed “on time, on schedule.” Although he had previously delayed these tariffs until March 4 due to new border measures from both nations, he also indicated plans to move forward with in-progress “reciprocal tariffs” that were expected by April 1.
Real Estate Prices Show Resilience Despite Broader Economy Slump
US home prices demonstrated solid growth in December. The December S&P Corelogic US home price index increased +0.52% month-over-month and +4.48% year-over-year, surpassing predictions of +0.40% and +4.41% respectively. This was also an improvement over November’s revised figures of +0.44% month-over-month and +4.35% year-over-year. Similarly, the December FHFA US house price index rose +0.4% month-over-month and +1.4% year-over-year, consistent with November’s revised report of +0.4% and improved from November’s +0.9% year-over-year figure.
Upcoming Economic Reports Will Drive Market Sentiment
The US economic calendar is filled with key reports this week. Thursday’s Q4 GDP report is anticipated to reveal a growth of +2.3% quarter-over-quarter (annualized), alongside a +4.1% increase in personal consumption. On Friday, the January PCE price index report, which is the Federal Reserve’s favored inflation measurement, is expected to decline slightly to +2.5% year-over-year from December’s +2.6%. The core index is also expected to fall to +2.6% year-over-year from +2.8%, leaving these figures above the Fed’s +2% inflation target.
The market currently assigns a 3% chance of a -25 basis point rate cut during the upcoming FOMC meeting on March 18-19.
European Currency Strengthens Amid Political Developments
EUR/USD (^EURUSD) increased by +0.45%, largely due to the dollar’s weakness. Additionally, the euro gained support following the German Christian Democrat party’s victory, led by Friedrich Merz, in the recent election against the far-right Alternative for Germany (AfD) party. Despite this win, the centrist parties may face challenges in forming a ruling coalition.
The euro also received a boost from remarks made by ECB Governing Council member and Bundesbank President Joachim Nagel, who stated that ECB rates are nearing neutral levels.
Germany’s Q4 GDP was confirmed at a modest -0.2% quarter-over-quarter and -0.4% year-over-year.
Market expectations now point to a 100% likelihood of a -25 basis point rate cut from the ECB during the March 6 policy meeting.
Japanese Yen Gains Amidst Dollar Weakness
USD/JPY (^USDJPY) declined by -0.43%, marking a new 4-1/2 month low primarily driven by the weakened dollar. Support for the yen was also bolstered by last Friday’s rise in the 10-year JGB bond yield, which reached a 15-year high of 1.466% before tapering to 1.37%. Additionally, Japan’s January national CPI jumped to a 2-year high of +4.0% year-over-year, suggesting further pressure on the Bank of Japan to consider interest rate hikes.
Precious Metals Suffer Despite Favorable Underlying Factors
April gold (GCJ25) fell by -44.40 (-1.50%), and March silver (SIH25) dropped by -0.777 (-2.38%) on Tuesday. Prices for precious metals decreased due to a risk-off environment and long liquidation pressures. This decline occurred despite favorable supporting factors such as a lower dollar and the steep fall in the 10-year T-note yield. Silver particularly suffered amid concerns regarding industrial metals demand, influenced by trade tensions and declining US consumer confidence.
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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
